Department of Private Law

LPL4801
Law of Lease
Study Guide 1

Prof Luanda Hawthorne

Mrs Helen Trytsman
Prof Tomas Floyd

University of South Africa, Pretoria

© 2016 University of South Africa

All rights reserved

Printed and published by the

University of South Africa
Muckleneuk, Pretoria

LPL4801/1/2017–2019

70506892

InDesign

HSY_Style
 CONTENTS

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MODULE OVERVIEW iv
Study unit 1: The relationship between the naturalia and the essentialia of contracts 1
Study unit 2: Definition and essential elements 5
Study unit 3: The influence of the Consumer Protection Act 68 of 2008 (“the CPA”), the
National Credit Act 34 of 2005 (“the NCA”), the Rental Housing Act 50 of
1999 (“the RHA”) and other legislation on the common law of lease 10
Study unit 4: Legality of contracts of lease 15
Study unit 5: The obligations of the lessor 18
Study unit 6: The lessor must deliver the thing 20
Study unit 7: The lessor may not disturb the tenant in his/her
possession – the duty to give undisturbed use and enjoyment (commodus
usus) 23
Study unit 8: The lessor must deliver the thing in a specific condition
and maintain it as such 27
Study unit 9: The landlord must guarantee the tenant against eviction 33
Study unit 10: The tenant’s real right 36
Study unit 11: Remission of rent 41
Study unit 12: Compensation for improvements 45
Study unit 13: The tenant’s duties 51
Study unit 14: The tenant must pay the rent 52
Study unit 15: The lessor’s tacit hypothec to secure the rent 58
Study unit 16: The tenant must take proper care of the property and not use it for a
purpose other than that for which it was let 65
Study unit 17: Subletting, cession, delegation and assignation 69
Study unit 18: The termination of a lease 74
Study unit 19: The Rental Housing Act 50 of 1999 81
BIBLIOGRAPHY 93

HSY3704/1 (iii)
 MODULE OVERVIEW
In this module (comprising study guides 1–3), we will briefly discuss contracts of
lease and sale and the statutory provisions pertaining to lease and sale.

MODULE OBJECTIVES
In this module we cover specific advanced subjects in the law of contract and, more
specifically, in the law of lease and sale, as well as legislation pertaining to these
contracts. The subjects covered in this module are regulated by the common law
and by statutes and will, therefore, also require you to demonstrate skills related to
the study of the positive law and statutory interpretation. As this course is aimed
at fourth-year students, it has been structured to build on the knowledge and skills
you have already attained and to solve practical problems in the field of the law of
contract. You will benefit by revising the general principles of the law of contract
and property law in so far as they relate to this module.

This module will be helpful to you in any field of law that you choose to practise.
Every lawyer, no matter what his/her field of expertise, should have a sound
foundation in the law of contract and, more specifically, the law of lease and
sale.

If you work through the study guides (which contain instructions on how to study
the module) properly, including completing all the activities and answering all the
questions at the end of each study unit, you should acquire all the skills (as set out
in the learning outcomes below) that you require to succeed in this module.

We hope that you will find this module interesting and useful for your future career.

LEARNING OUTCOMES FOR THE MODULE

The learning outcomes for this module are as follows:

• Contextualising the common-law principles applicable to contracts of

lease and sale
After you have mastered this module, you should firstly be able to recognise the
role of contracts of lease and sale, as well as credit agreements, in everyday life.
This requires a basic understanding of the historical development of sale, lease and
credit agreements. You should also be able to describe how the general principles
of the law of contract interact with the common-law rules applicable to the specific
contracts of sale and lease. Finally, you should be able to describe the common-law
obligations of both the parties to contracts of lease and sale.

• Describing the statutory measures and their impact on the common law
You should have a clear understanding and working knowledge of the statutory
provisions that apply to this field of law, as well as when they are applicable. You
should also be able to interpret the provisions of the various pieces of legislation
and understand how they interact with the common law. We cannot emphasise this
learning outcome enough. Legislation changes the common law to a great extent,
and you should be able to integrate the common law with the applicable legislation.
Study guide 3 is dedicated to the statutory regulation of the law of sale and lease,
which you should study in conjunction with study guides 1 and 2, as further indicated.

(iv)
 • Thinking critically and analytically within a contextual framework
You should have a clear understanding of sale, lease and credit agreements within a
variety of contexts. You will therefore have to demonstrate your ability to interpret
and explain credit agreements and usury problems in different contexts.

• Solving problems relating to lease, sale, credit agreements

You should be able to use the appropriate methods and skills to apply your basic
knowledge of lease and sale, credit agreements and usury law in a variety of contexts.
In order to do this, you will have to demonstrate your ability to

– identify the legal problem relating to the factual scenario presented

to you
(This is a crucial step, because if you identify an irrelevant problem, you are going
to apply the wrong law!)
– find the relevant sources and authorities in the prescribed tutorial
matter to help you solve these problems
– analyse and critically evaluate the relevance and applicability of such
legal sources and authorities to a particular practical problem
– select the most authoritative legal materials to solve such a problem
– consider and critically evaluate the different solutions to such a problem
– apply the relevant law to the factual scenario presented to you
– give advice on an appropriate course of action in these fields

• Engaging with legal texts relating to lease, sale and credit agreements
Mastering this module involves developing the ability to do research, to raise critical
legal arguments and to take responsibility for the legal opinions that you advance.
You will therefore be required to demonstrate your ability to:

– read, understand and interpret legal texts

– reflect on the views expressed in such texts
– use legal texts to support your arguments and solutions to particular
problems
Achieving these five learning outcomes will also equip you with the following skills
in a broader sense:
– identifying, analysing and solving legal problems
– managing and organising your life and activities responsibly and
effectively
– collecting, analysing, organising and critically evaluating information
– communicating effectively (orally or in writing)

LPL4801/1 (v)
vi
 1 STUDY UNIT 1
THE RELATIONSHIP BETWEEN THE
1

NATURALIA AND THE ESSENTIALIA OF

CONTRACTS

Xander sells his Polo Vivo to Judy for R100 000. The only terms contained in their
agreement are the description of the vehicle and the purchase price. The vehicle
is now faulty and Judy wants to know what her rights are, as the contract does not
stipulate anything in the event of a latent defect.

CONTENTS
1.1 THE RELATIONSHIP BETWEEN THE GENERAL PRINCIPLES OF
CONTRACT AND SPECIFIC CONTRACTS
1.2 HOW AND WHY CONTRACTS ARE ASSIGNED TO DIFFERENT
CLASSES (TYPES)
1.2.1 The essentialia of a contract
1.2.2 The naturalia of a contract
1.2.3 The six requirements for a valid contract

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the relationship between the general principles of contract and specific
contracts
• explain how and why contracts are assigned to different classes (types)
• set out the essentialia of a contract
• set out the naturalia of a contract
• briefly name and explain the six requirements for a valid contract

1.1 THE RELATIONSHIP BETWEEN THE GENERAL PRINCIPLES

OF CONTRACT AND SPECIFIC CONTRACTS
Every specific contract is first of all a contract. That means that all the general
principles of the law of contract apply to it. The following questions should be
answered with reference to the general principles of the law of contract: Whether
an alleged contract has, in fact, been entered into; whether the contract that was
entered into is valid or void – or whether it is valid but voidable; whether there
has been a breach of the contract; and what remedies are available to a contractant
on the ground of his/her co-contractant’s breach. We encourage you to revise the
general principles of the law of contract that you studied have completed earlier in
your studies.

LPL4801/1 1
 1.2 HOW AND WHY CONTRACTS ARE ASSIGNED TO DIFFERENT
CLASSES (TYPES)
content It is the content (terms) of a contract that determines whether it is to be assigned to
determines type of a specific class of contracts or whether it is to be regarded as a contract sui generis,
contract
that is, as a contract that does not fit into any particular class, but is one of a kind.

The terms of a contract may be classified as:

– essentialia (essential terms)

– naturalia (natural terms)
– incidentalia (incidental terms)

1.2.1 The essentialia of a contract

essentialia of The essentialia of a contract are not terms that are essential for the validity of the
contract of sale contract; they are terms that are essential for the classification of a contract as one
of a specific type. For instance, for a contract to be classified as a contract of sale,
it must contain two essential terms (no matter how many other incidental terms it
may contain). We will use a contract of sale to illustrate this concept.

There must be:

(1) an undertaking by the one contractant (the seller) to deliver a thing (the res
vendita or object of the sale) to his/her co-contractant (the buyer)
(2) an undertaking by the co-contractant to pay a sum of money in exchange for
the thing
If a contract does not contain these two terms, it cannot be a contract of sale. It
may be another type of specific contract if it contains all the essentialia of that other
type of contract. If it does not contain the essentialia of any type of contract, but is
a valid contract, it will be a contract sui generis. The essentialia of a contract of lease
will be discussed in detail in study unit 2. The essentialia of a contract of sale will be
discussed in study guide 2, study unit 2.

1.2.2 The naturalia of a contract

naturalia The identification of a contract as belonging to a particular class or category (type)

determined by is important, mainly because the class to which a particular contract belongs
type of contract determines its naturalia (natural terms). The naturalia of a contract of a particular
class are included in the contract by operation of law (ex lege). Therefore, they need not
be expressly negotiated by the parties. The naturalia of most of the specific contracts
found in South African law developed many centuries ago – often on the basis of
notions of what is fair and reasonable, which originated in Roman law. Some of the
naturalia are newly introduced natural terms arising from new legislation. The
operation of any or all of the natural terms attaching to a particular class of contract
may, as a rule, be excluded by agreement between the parties to a particular contract
of that class. That means that although parties do not have to agree to include the
naturalia in their contract (such naturalia being attached to the contract by law), it can
nevertheless be said that the operation of the naturalia ultimately depends on the
will of the parties, for they could have excluded the naturalia, had they so desired
(see below under incidentalia).

2
 STUDY UNIT 1: 1The relationship between the naturalia and the essentialia of contracts

However, some naturalia may never be excluded because a certain provision in

legislation dictates that. For example, the seller’s warranty against latent defects
(an example of naturalia) cannot be excluded from a contract that is subject to the
Consumer Protection Act 68 of 2008. You will learn more about this in study guide
2 (read together with study guide 3).

When parties intend to enter into a particular class or type of contract, it is sufficient
if they agree on the essentialia of that type of contract. The essentialia on which they
have agreed, plus the naturalia that form part of the contract by operation of law,
will provide them with a contract that contains sufficient particulars to ensure that
there can be no doubt about what they intended. (In a contract of sale, for instance,
it is sufficient if the parties agree on the object to be sold and the price to be paid;
when, where and in what condition the object is to be delivered and when, where
and how the price is to be paid will be prescribed by the naturalia).

incidentalia However, contractants often wish to exclude the operation of some or all of the
naturalia or to make arrangements for which the essentialia and naturalia do not provide.
In principle, they are free to insert as many additional terms as they deem necessary
to tailor their contract to their specific requirements. Such additional terms are called
“incidental terms” (incidentalia or accidentalia).

1.2.3 The six requirements for a valid contract

There are a number of requirements that must be complied with for any contract
to be valid. If they are not complied with, the contract is said to be invalid or void.
The requirements in question are stated hereunder.

To refresh your memory of the law of contract, the following are the six absolute
requirements for a valid contract:

six absolute (1) There must be consensus or apparent consensus.

requirements for
(2) The parties must have contractual capacity.
valid contract
(3) Prescribed formalities must be complied with.
(4) The obligations created by the contract must be capable of being performed.
(5) The contractual agreement must be legal.
(6) Performances must be determined or determinable.

ACTIVITY
1. Explain what determines the class or category that a particular contract
falls into.
2. Explain the importance of classifying a contract as belonging to a particular
style.
3. Explain whether the essentialia, the naturalia and the incidentalia of a
contract may be excluded.
4. Explain what the essentialia of the contract of sale are. (This is very important,
as you need to be able to compare the essentialia of a contract of sale with
those of a contract of lease.)
5. Reread the scenario at the beginning of this study unit on page 1. Give Judy
appropriate advice.

LPL4801/1 3
 1 FEEDBACK
(1) The essentialia determine the category into which a particular contract falls.
See the above discussion at 1.2.1.
(2) It is necessary to classify a contract as being of a specific type, since this
determines the natural terms of that contract. See the above discussion at
1.2.2.
(3) Set out your answer to this question in the form of three columns. The
information you need can be found in 1.2.1, and 1.2.2 above.
(4) Make two columns. In the one, insert the essentialia of a contract of sale,
which can be found in 1.2.1. The essentialia of a contract of lease will be
explained in paragraph 2.2 of study unit 2.
(5) Although the contract did not stipulate anything in the event of latent defects,
we know that this is a sales agreement because the essentialia of a sale
agreement have been met. Now that we have identified the type of agreement,
we can determine what the naturalia of a sales agreement are. One of the
naturalia is that the seller warrants (guarantees) against latent defects.
Because this naturale has not been excluded by an incidentale, Judy will
have a remedy, because the voetstoots clause has not been included into
this agreement. It is unlikely that the Consumer Protection Act 68 of 2008
will be applicable, as this looks like a private transaction, but if the CPA were
applicable, it would not have been possible to include the voetstoots clause.
All this will be explained in study guides 2 and 3, but at this stage you just
need to realise how important it is to understand the essentialia, naturalia
and incidentalia of contracts, as well as the relationship between them.

4
 2 STUDY UNIT 2
DEFINITION AND ESSENTIAL ELEMENTS

Thabo leases three potted azalea shrubs from Sifiso as decorations for a function
that Thabo is organising. The day before the function, a storm destroys the azaleas.

CONTENTS
2.1 INTRODUCTION
2.2 DEFINITION OF A CONTRACT OF LEASE
2.3 THE ESSENTIAL ELEMENTS OF A CONTRACT OF LEASE
2.3.1 Essential elements of a contract of lease
2.3.2 The requirement that the parties must agree to deliver and receive
a specific thing
2.3.3 The letting and hiring of the leased thing must be temporary and
not in perpetuity
2.3.4 The thing subject to the lease can be corporeal, incorporeal or an
object still to come into existence
2.3.5 The lessee must pay rent for the leased thing

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• define a contract of lease

• set out the essential elements of a contract of lease

2.1 INTRODUCTION
three types of Roman law recognised three types of letting and hiring, namely the hiring of services
letting and hiring
that are conducted under supervision, the hiring of a person’s services in order to
obtain the results of the labour, such as the building of a house, and, lastly, the letting
and hiring of a thing that can be either movable or immovable. It is the letting and
hiring of a thing that forms the subject of this study guide.

2.2 DEFINITION OF A CONTRACT OF LEASE

definition of lease A contract of lease of a thing (a contract of letting and hiring) is a reciprocal agreement
contract between one party, namely the lessor, and another party, namely the lessee, whereby
the lessor binds himself/herself to give to the lessee the temporary use and enjoyment
of the thing, in return for the payment of the rent.

LPL4801/1 5
 2.3 THE ESSENTIAL ELEMENTS OF A CONTRACT OF LEASE

2.3.1 Essential elements of a contract of lease

Apart from the absolute requirements for the validity of contracts in general, the
essential elements of a contract of lease on which the lessor and lessee must reach
agreement in order to conclude a contract of lease are:

3 essentialia (1) The lessor must deliver and the lessee must receive a thing or property for the
temporary use and enjoyment of this thing or the property.
(2) There must be a thing that is being let.
(3) An amount of rent must be determined for the use and enjoyment of the
leased thing.
An agreement that does not embody all three of these terms may still be a valid
contract, but it cannot be a contract of lease. So, for instance, a contract which
provides that the one party is to deliver a thing to the other and that the other is
to pay a sum of money in return, but which does not also provide that it is only the
temporary use and enjoyment of the thing that is being parted with by the one in
favour of the other, will be a contract of sale and not a lease. Likewise, a contract
which does provide that it is the temporary use and enjoyment of the thing that
is being parted with, but which does not contain a provision to the effect that the
intended recipient of the thing is to pay a sum of money for its use and enjoyment
will be a contract of loan and not a lease.

2.3.2 The requirement that the parties must agree to deliver and receive
a specific thing
It is obvious that the property let must be identifiable, and Glover (Lease 345) gives
the example that it will be adequate to refer to the property as “the farm that A has
just bought from B”. As long as the property is adequately described, it will suffice.
Failure to do so will render the contract void for vagueness. However, in the event
of long leases that are to be registered against the title deed of the property (see study
unit 10 par 10.2.1), the property description will have to follow the Deeds Office
rules and regulations.

2.3.3 The letting and hiring of the leased thing must be temporary and
not in perpetuity
lease = temporary If the lease is to continue for a definite period or until the occurrence of a future
event, or is at the will of either the lessor or lessee, or if the period is indefinite but
the rent is payable periodically, the lease is considered to be temporary.

A lease cannot be forever; only a contract in which the temporary use and enjoyment
of a thing is granted to one of the parties can be a lease. That is the view of most
Roman-Dutch and South African writers on the law of lease. This does not mean,
however, that a contract in which the use and enjoyment of a thing is granted to
a party in perpetuity is, for that reason, invalid; it only means that such a contract
cannot be one of letting or hiring. It may be a valid emphyteusis.

The requirement that a contract of lease be of limited duration is complied with in

the following cases (Glover Lease 368–370):

6
 STUDY UNIT 2: Definition and essential elements

• if the lease is to run for a definite period

• if the lease is to run until the occurrence of an event that is certain to occur,
although the date of its occurrence may be uncertain
• if the lease is at the will of either lessor or lessee
• if the lease is for an indefinite time with the rent payable periodically (in such a
case, the lease may be terminated by either party by reasonable notice given to
the other)

2.3.4 The thing subject to the lease can be corporeal, incorporeal or an

object still to come into existence

incorporeal thing As in the case of contracts of sale, we find that the concept “thing” includes incorporeal
can be object of things, with the result that rights may also be leased. For example, it is contended
lease that a usufructuary can hire out his/her usufruct. In Young v Smith and Another 1961 3
SA 793, it was argued – on the strength of Graham v Local and Overseas Investments
(Pty) Ltd 1942 AD 95 – that there is no doubt that an incorporeal thing can form
the subject of a lease. In this case, the matter arose from granting the tenant the
power to conduct a business on a particular piece of land. In this context, the court
said: “What was let is not corporeal property but the incorporeal right to trade.” In
contrast to this case, the view had been taken in a series of previous decisions that
the granting of an exclusive right to do business on certain premises is not the lease
of a thing, but an innominate contract for the granting of something similar to a
personal servitude.

Unisa’s opinion The view that incorporeal things, that is, rights, can be let and hired is
unconvincing. In all of the abovementioned cases, it is obvious that corporeal
things were being let, even though the lessee’s powers of use and enjoyment may be
very much restricted by the contract. In the case of a usufructuary, it is clearly the
thing that is the object of the usufruct that is being let.

The fact that the lessor is the usufructuary of the thing merely means that the lessor is
able, by virtue of his/her legally valid title, to protect the lessee in his/her possession
of the thing. Likewise, where the lessor empowers the lessee to do business on certain
premises, the premises are let on the understanding that the tenant will have only a
certain proportion of the use and enjoyment thereof. That the lessee’s powers may
be very limited in a particular case indicates that the contract is a lease rather than
anything else. It is, after all, one of the essentialia of a lease that the lessee will
not enjoy all the powers of ownership.

a portion of an As long as the performances of the parties are ascertainable, there can be no objection
existing thing is a to the landlord’s agreeing to deliver only a portion of an existing thing. Such a contract
valid lease object
would undoubtedly qualify as a lease, for example where A let a flat to B (the flat is
clearly not an independent entity, but forms part of the ground on which it is built).

a thing still A thing that has not yet come into existence can also be let. The mere fact that
to come into the undertaking is to deliver such a thing does not automatically mean, therefore,
existence can be
let
that there cannot be a lease. This type of case is called a locatio conductio rei speratae.
If the thing does not come into being, the lessor’s performance naturally becomes
impossible. The normal principles relating to supervening impossibility and prevention
of performance then take effect (see study unit 11 below).

LPL4801/1 7
consumables An undertaking to make available a fungible thing at a price cannot qualify as a
lease, for example a bag of sugar cannot be let. Letting and hiring presumes that
the use and enjoyment of the thing will be made available and not that the lessee
will consume the thing. Thus there cannot, in general, be a lease where the “lessee”
acquires the power to consume or diminish the thing, for example where it is agreed
that a salt pan may be exploited at a price. The lease must be for the temporary use
and enjoyment of the thing, which means that the leased article or premises must
be returned to the lessor at the expiration of the lease period.

lessee’s powers In a genuine lease, the parties will always expressly or tacitly limit the powers that the
limited lessee may exercise over the thing. Only the use and fruits of the thing are granted
to the tenant to a greater or lesser extent.

performance must The undertaking to deliver the leased object must be possible at the time of conclusion
be possible of the lease. If not, the contract is void, as this requirement is one of the requirements
for the conclusion of a valid contract.

2.3.5 The lessee must pay rent for the leased thing
rental must sound According to the definition above, the payment of rent is a further essentiale of a lease.
in money Therefore, if no price is paid for the use of the thing, there can be no lease. The
exception:
partiarian agricultural lease is the one exception. Here the lessee’s performance may
partiarian consist of a definite quantity or a portion of the proceeds or fruits from the leased
agricultural lease property. There is an abundance of authority (Roman-Dutch writers and case law)
for the above view.

criticism Some authors are highly critical of this rule that the rent must sound in money, and
suggest that there is no real reason why something else (e.g. an improvement to the
rented premises) could not suffice as rent (e.g. Cooper Landlord 44–54; Glover Lease
359–365). There is also an old Appellate Division case, Rubin v Botha 1911 AD 569,
which seems to lend some support to the view that rental can sound in something
other than money or fruits.

Rubin case: In the Rubin case, the lessees rented the land for ten years. No money was payable as
rental could be rent, but the lessee had to erect a house, stable and fowl-run for which no compensation
improvements
could be claimed by the lessees upon termination of the lease. The improvements
were erected, but the owner gave the lessee notice to evacuate the farm because
the contract was invalid in terms of a statute that required the lease to be notarially
executed. The lessees then claimed compensation for the improvements. In order
to determine the basis of compensation, the Appellate Division held that the lease
agreement was void because it was not notarially executed. The court failed to discuss
the question of whether the contract was indeed a lease, but merely tacitly assumed
that it was, in fact, a lease agreement, although no monetary rent was payable.

Jordaan v Verwey: The High Court in Jordaan v Verwey 2002 1 SA 643 (E) 646 referred to the decision
rent must sound in in the Rubin case and pointed out that the court did not even discuss the question of
money or fruits whether rental could sound in something other than money or fruits. In Jordaan, the
“lessee” had to install a micro jetting system in the orchard of one of the properties
in exchange for the use of five orchards. The court held that the contract was not
a lease and refused to change the law in this regard. The court reasoned as follows
(646–647):

8
 STUDY UNIT 2: Definition and essential elements

To my mind practical considerations are decisive. The essential difference

between the elements of lease agreements and other agreements relating to use
and enjoyment of immovable property (the so-called innominate contracts) lies
in the rule relating to the nature of the consideration payable. The distinction
may be archaic and lacking in relevance, but the incidents attaching to the two
classes of contracts differ significantly, as is pointed out by Kerr (loc cit). These
differences are well known and well defined. I have no reason to believe that
they are no longer regarded as part of the law whereby persons regulate their
business in this country. To my mind it is not in accordance with public policy
that they should find themselves in a position different from that which they
thought they had agreed to. Juristic certainty is not necessarily in itself a decisive
consideration, but to my mind the court should not lightly change accepted
law. The consequences of such course are not always readily foreseeable, they
certainly have not been fully canvassed before us. Investigation of the effects
of and the need for changes in the law is a matter more properly for the South
African Law Commission, for action by Parliament if necessary.

ACTIVITY
1. Compare the definition of a contract of sale with the definition of a contract
of lease, with specific reference to the elements of both contracts.
2. Reread the factual scenario at the beginning of this study unit on page 5.
Advise Thabo regarding his rights in terms of the contract.
3. What is meant by the requirement that a lease must be of limited duration?
Distinguish the different periods for which a thing can be leased and still
qualify as a valid lease.
4. Discuss whether the subject of a lease can be both corporeal and incorporeal.
Substantiate your answer.

2 FEEDBACK
(1) Go back to the columns you made at the end of study unit 1 and complete
the column on lease with reference to paragraph 2.3.1. By now you should
know the essentialia of both a contract of sale and a contract of lease.
(2) This is a case of impossibility of performance and no valid contract will
arise. Sifiso thus has no rights.
(3) Refer to paragraph 2.3.3.
(4) Refer to paragraph 2.3.4.

LPL4801/1 9
 3 STUDY UNIT 3
THE INFLUENCE OF THE CONSUMER
PROTECTION ACT 68 OF 2008 (“the CPA”),
THE NATIONAL CREDIT ACT 34 of 2005 (“the
NCA”), THE RENTAL HOUSING ACT 50 of
1999 (“the RHA”) AND OTHER LEGISLATION
ON THE COMMON LAW OF LEASE

Felicity is an owner of a block of flats, which she rents out to various lessees. She
has come to see you, her attorney, for legal advice. Although she knows that her lease
agreements are compliant with the Rental Housing Act 50 of 1999 (“the RHA”),
she now wants to know what she has to do to make her lease agreements compliant
with the NCA and the CPA.

CONTENTS
3.1 AN INTRODUCTION TO THE INFLUENCE OF THE NCA ON
LEASE AGREEMENTS
3.2 AN INTRODUCTION TO THE INFLUENCE OF THE CPA ON LEASE
AGREEMENTS
3.3 AN INTRODUCTION TO THE INFLUENCE OF THE RHA ON
LEASE AGREEMENTS
3.4 AN INTRODUCTION TO THE INFLUENCE OF THE PREVENTION
OF ILLEGAL EVICTION FROM AND UNLAWFUL OCCUPATION
OF LAND ACT 19 OF 1998 (“PIE”) ON LEASE AGREEMENTS
3.5 AN INTRODUCTION TO THE INFLUENCE OF THE FORMALITIES
IN RESPECT OF LEASES OF LAND ACT 18 OF 1969 ON LEASE
AGREEMENTS

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain that the NCA is not applicable to common-law leases and that the definition
in the NCA of a lease does not relate to a common-law lease
• explain that the CPA is applicable to certain leases and explain, in broad terms,
its major implications for the law of lease
• explain the relevance of the RHA on lease agreements in broad terms
• explain the relevance of PIE on lease agreements in broad terms
• explain the relevance of the Formalities in Respect of Leases of Land Act 18 of
1969 in broad terms

It can be quite difficult to understand how the different pieces of legislation operate
within the common law of lease; therefore we have drafted the following diagram
to assist you. Please note that this diagram is a simplification of the relevant
principles and should be studied together with the relevant parts of the study
material:

10
 STUDY UNIT 3: The influence of various legislation on common law lease agreements

COMMON LAW as modifi ed by:

PIE RHA CPA NCA
(Prevention (Rental Housing (Consumer (National
of Illegal Act 50 of 1999) Protection Act Credit Act 34
Eviction from 68 of 2008) of 2005)
and Unlawful
Occupation of
Land Act 19 of
1998)
Applies to Applies to a Applies to a lease Not applicable
unlawful lease for housing between supplier to common-law
occupiers purposes. (lessor) and leases.
(including consumer (lessee)
“Lease”, as
instances of as defined in the
defined in NCA,
holding over) CPA.
does not refer to
Lessor must let a common -law
the property in the lease.
ordinary course of
business.
Limited
application to
lease agreements,
because lease
agreements
do not qualify
as a supply of
goods, but rather
a supply of
services.
Possible interplay between the above:
Where both PIE and RHA are applicable, it will affect the eviction procedure:
The lessor must first comply with the RHA before he/she can evict the lessee
in terms of PIE.
It is possible that both the RHA and the CPA may apply to the same lease
where the lessor leases property for housing purposes in the ordinary course
of the lessor’s business. Where a conflict arises between the two Acts, s 2(9)
(b) of the CPA provides that the Act that affords greater protection to the
consumer (lessee) will apply.

3.1 AN INTRODUCTION TO THE INFLUENCE OF THE NCA ON

LEASE AGREEMENTS
In a nutshell, the NCA is not applicable to common-law leases. Firstly, it is not
applicable to the lease of immovable property, as the NCA specifically excludes these
transactions (see Study Guide 3, study unit 4, par 4.6). Secondly, the definition of a
lease of movable property in the NCA is completely different from the common-law
lease of movable property. In the case of the former, ownership is transferred to the
“lessee” at the end of the term, which is clearly not compatible with the aforesaid
essentialia of a common-law lease agreement.

LPL4801/1 11
 3.2 AN INTRODUCTION TO THE INFLUENCE OF THE CPA ON
LEASE AGREEMENTS
to which lease After reading through the study units in Study Guide 3 pertaining to the CPA, you
agreements is the will know that the CPA is applicable to certain lease agreements. It will become clear
CPA applicable?
to you that the lease should be “in the ordinary course of business”.

Unfortunately, the CPA omitted to indicate what is meant by “in the ordinary course
of business”. Does this mean that it applies only to lessors who operate their leasing
business as an operating enterprise? Or should we follow the courts’ interpretation
of “ordinary course of business”, where a lease upon terms that ordinary persons
would normally enter into with a financial motive, would qualify (Glover Lease
335–337)? Following this interpretation, it could even include an owner of an erf
who is letting a garden flat.
The CPA would also normally apply to the lease of movable property (Glover Lease
337).
effect of the One of the most drastic sections pertaining to the law of lease is section 14 of the
CPA on a lease CPA, which is discussed in detail in Study Guide 3; study unit 19, paragraph 19.1.
agreement It will also be discussed in this Study Guide under study unit 18, paragraph 18.2.
long leases
In a nutshell, it states that fixed-term contracts may not be longer than 24 months,
unless certain requirements are met. Does this now mean that all long leases are
now forbidden when the transaction falls under the CPA? Glover (Lease 338) avers
that this section was probably never intended to apply to leases, but rather to other
forms of supply contracts, such as gym and cell phone contracts. The legislature will
have to rectify this situation for the sake of legal certainty.
Apart from the important implications of section 14 of the CPA for leases, the other
implications are of a more general nature. A number of relevant sections will be
briefly mentioned here. Glover (Lease 340) points out correctly that the law of lease
is less affected by the CPA than the law of sale. This partly because many sections
in the CPA are only applicable to the “Supply of goods”, which possibly excludes
lease agreements. Refer to Study Guide 3, paragraph 18.4.1. However, please keep
in mind these general provisions of the CPA when working through the rest of this
study guide.
For a detailed discussion on these aspects, please refer to the discussion of the CPA
in Study Guide 3.
non-discrimination The marketing of lease items may not be in such a way that it is discriminating
against anyone (ss 8 and 9). Furthermore, a consumer has a right to cancel advance
bookings, for instance a car rental agreement (s 17).

Many provisions of the CPA simply reinforce the common law of lease. For instance,
the goods must be delivered at an appropriate date and time (s 19) and the lease
agreement must be in clear and understandable language (s 22). The right to fair and
honest dealing, involving aspects such as duress and misrepresentations (ss 40 & 41),
all echo the common-law aspects. Please refer to Study Guide 3, study units 18–23.

The sections dealing with the consumer’s right to fair, just and reasonable terms
should be kept in mind. However, Glover (Lease 339) correctly states that the residual
terms of the common law and the clear framework provided by the RHA would
normally preclude a supplier/lessor from including unfair terms in a lease agreement.

With regard to the so-called blacklisted items in terms of section 51 of the CPA, a
few prohibited items are relevant to lease agreements. Section 51(1)(h) of the CPA

12
 STUDY UNIT 3: The influence of various legislation on common law lease agreements

states that a contract may not be subject to a term where the consumer will forfeit
money to the supplier that the supplier is not entitled to in terms of any other
law. This is relevant to deposits and protects the lessors’ rights regarding deposits
in terms of the RHA. Section 51(1)(i) prohibits a clause authorising a person acting
on behalf of the supplier to take possession of the goods to which the transaction
relates. Glover (Lease 340) is of the opinion that the legislature could never have
intended to take away the lessor’s tacit hypothec (see study unit 15 par 15.1 below).

The so-called grey list items in terms of regulation 44 (see study guide 3, study unit
22, par 22.1) are largely applicable to other contracts and not to lease agreements.
The sections dealing with the right to fair value, good quality and safety relate to
the supply of “goods”, which would exclude lease agreements. As already mentioned
above, “goods” specifically exclude rented property, as rental property is expressly
included as a service, namely “the provision of access to or use of any premises or
other property in terms of rental” (s 1).

3.3 AN INTRODUCTION TO THE INFLUENCE OF THE RHA ON

LEASE AGREEMENTS
A detailed discussion of the RHA will follow in study unit 19. At this stage, it is
enough for you to keep in mind that this Act is only applicable to residential leases
and that its effect is so far-reaching and significant that its impact will be discussed
wherever applicable in this Study Guide. Also important to note is that the RHA is
about to be amended by the Rental Housing Amendment Act 35 of 2014 (“the 2014
Amendment Act”). The most important of the proposed amendments will also be
discussed in broad terms in study unit 19.

3.4 AN INTRODUCTION TO THE INFLUENCE OF THE PREVENTION

OF ILLEGAL EVICTION FROM AND UNLAWFUL OCCUPATION
OF LAND ACT 19 OF 1998 (“PIE”) ON LEASE AGREEMENTS
The influence of PIE on lease agreements will be discussed in study unit 14, paragraph
14.7. Again, it is only applicable to residential leases and not commercial leases. It
deals with the procedure and rules that a lessor has to follow when a tenant remains
in occupation after the lease agreement has been lawfully terminated.

3.5 AN INTRODUCTION TO THE INFLUENCE OF THE

FORMALITIES IN RESPECT OF LEASES OF LAND ACT 18 OF
1969 ON LEASE AGREEMENTS
This influence will be discussed in study unit 10 and deals with a tenant’s real right
and the way that such a real right is established.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 10. Advise
Felicity in your own words.

LPL4801/1 13
 3 FEEDBACK
At this stage, you will be able to give advice to Felicity in broad terms about the
effect of the CPA on common-law lease agreements. You are encouraged to redo
this activity once you have worked through all the study units of this study guide.

14
 4 STUDY UNIT 4
LEGALITY OF CONTRACTS OF LEASE

Steve is the owner of a luxury guest house. Guy is desperate to start a brothel in
an upmarket area. Steve sees an opportunity to make money by exploiting the fact
that he knows about the brothel but agrees to keep quiet on condition that Guy
pays him double the normal rental. Consequently, Steve offers his house to Guy for
R60 000 per month for a period of two years. After 18 months, Guy is very short
of money and decides to approach you for legal advice, since he is of the opinion
that he may be entitled not only to have the rent reduced to a reasonable amount,
but also to institute a claim for the amount by which he has overpaid Steve for the
past six months.

CONTENTS
4.1 GENERAL PRINCIPLE OF LEGALITY
4.2 CONSEQUENCES OF ILLEGALITY
4.3 EX TURPI CAUSA NON ORITUR ACTIO
4.4 THE PAR DELICTUM RULE
4.5 RELAXATION OF THE PAR DELICTUM RULE

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the general principle of legality

• explain what is meant by an “illegal lease”
• explain the effect of illegality
• explain the ex turpi causa non oritur actio rule
• explain the par delictum rule
• explain the relaxation of the par delictum rule

4.1 GENERAL PRINCIPLE OF LEGALITY

conclusion, The general principle of the law of contract, namely that the conclusion of the
performance and
contract, its performance and its object must be lawful, also applies to contracts
object must be
lawful of lease. Legality is one of the requirements for a valid contract.

A contract is unlawful when its conclusion, performance or the reason for its
existence is forbidden by statutory or common law, or is contrary to public interest
or is contrary to good morals. A lease contract would be illegal and void (or partially
illegal and void), for example,

• if the requirements of the CPA are not fulfilled

• if premises are let to be used as a brothel in terms of the Sexual Offences Act
23 of 1957

LPL4801/1 15
 4.2 CONSEQUENCES OF ILLEGALITY
consequence – void A contract that disregards this requirement is illegal and, therefore, void and
and unenforceable unenforceable. A court will not enforce an illegal lease, irrespective of whether the
parties to the contract raise the question of illegality. However, when the question
of illegality is in issue, the onus of proving the illegality rests on the party alleging it.

Where the contract is only partially illegal (e.g. certain terms of a consumer contract
are prohibited in terms of the CPA) and the illegal part cannot be severed from the
rest of the contract, the whole of the contract is void. Where the illegal terms can
be severed from the rest of the contract, only the illegal terms are void.

4.3 EX TURPI CAUSA NON ORITUR ACTIO

no action The first consequence of the nullity of an illegal contract is that neither party may
institute an action on the contract. This rule is contained in the maxim ex turpi causa
non oritur actio, which means that from an immoral cause, no action arises. This
is an absolute rule of the law of contract and there are no exceptions. The fact that
one of the parties has performed his/her undertaking makes no difference because
performance does not render the contract legal. The court will still refuse to enforce
the contract. The unlawfulness of the contract means that the one party may not
only not claim performance from the other, but also that a party who has suffered
damages as a result of the breach of such a contract may not claim damages from
the other party by relying on the contract.

4.4 THE PAR DELICTUM RULE

where two parties Because the contract is void, restitution should, in principle, be granted, for example
are both guilty, the return of the rental to the lessee. This rule is based on unjustified enrichment.
the one who is in
possession is in the
However, there is another rule in our law that prevents the lessee from claiming
stronger position the return of the rent, namely in pari delicto potior est conditio possidentis, which means
that where two parties are both guilty, the one who is in possession is in the stronger
position.

This rule is founded on public interest, as the courts will do everything in their
power to discourage unlawful contracts. The question that now arises is what relief
is available to the lessee to receive the repayment of the rental.

4.5 RELAXATION OF THE PAR DELICTUM RULE

exception when It is clear that the in pari delicto rule may sometimes be prejudicial to the plaintiff
simple justice (the lessee in our example) and because of this, the rule is sometimes relaxed. The
between man and
reasoning behind the par delictum rule is that the party who has acted disgracefully
man demands it
by executing the performance should not be allowed to recover such performance.

However, where a party to an unlawful contract has performed, but his/her

performance is not disgraceful, he/she may recover from the other party that
which he/she has performed. The argument raised to relax the stringent application
of this rule is that the par delictum rule is founded on principles of public interest,
which also demand that justice be done. Consequently, it cannot be in the public
interest to enforce the par delictum rule where this would be patently unjust to the
plaintiff. The par delictum rule is therefore to be applied as a general rule to which an

16
 STUDY UNIT 4: Legality of contracts of lease

exception must be made whenever “simple justice between man and man demands
it”. Whether a court will be prepared to relax the par delictum rule in a given case is
therefore uncertain and will be decided on the merits of each case.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 15 and
then answer the questions below.

1. Is Guy bound by the lease contract that he knowingly signed?

2. Would Guy succeed in a claim for the amount that he has paid in excess of
the amount that is reasonably being charged as rent in the area?

4 FEEDBACK
(1) The fact that the contract was concluded contrary to The Sexual Offences
Act 23 of 1957, which prohibits the running of a brothel, has the effect that
the contract is unlawful and therefore void. Guy is not bound by the contract.
(2) The contract is void, which means that there is no contract upon which
Guy may base his claim (according to ex turpi causa). Guy will have to
find an alternative ground for his claim. Because there is no contract, Guy
has been making payment to Steve for no reason. Guy will have to rely on
unjustified enrichment in order to reclaim his money. However, unjustified
enrichment is qualified by another rule in our law, known as the par delictum
rule (i.e. where both parties are guilty, the one who is in possession is in
the stronger position).
Guy will, however, be entitled to reclaim his money if performance by him
was not disgraceful and it is required by “simple justice between man and
man”. You could argue in this instance that both parties knew that the guest
house was going to be used as a brothel. Therefore Guy’s payment of the
rent was disgraceful, and it does not seem as if the balance of equities
favours relaxation of the par delictum rule.

You could argue further that Guy is still in possession of the guest house
and has had full occupation and use of the property.

However, it remains a matter of discretion of the courts, taking into account

all the circumstances.

LPL4801/1 17
 5 STUDY UNIT 5
THE OBLIGATIONS OF THE LESSOR

A lessor has certain obligations, which he/she has to fulfil. If he/she fails to fulfil
any one of his/her obligations, he/she is in breach of the contract.

CONTENTS
5.1 OBLIGATIONS OF THE LESSOR

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• set out the different obligations of the lessor

• understand that failure to fulfil an obligation is a form of breach of contract by
the lessor, and be able to identify the form of breach of contract and set out the
relevant remedies available to the lessee

5.1 OBLIGATIONS OF THE LESSOR

When concluding a contract of lease, the parties are bound by those obligations that
they have expressly or impliedly undertaken and by those that the law imposes
on them, in the absence of such express or implied agreement.

The lessor is obliged:

(1) to make available or deliver the use and enjoyment of the property
(2) to refrain from disturbing the lessee’s use and enjoyment of the property
(3) to place and maintain the property in the condition agreed upon
(4) to warrant against eviction
Should the lessor fail to fulfi l one of the above obligations, he/she breaches the
contract. Failure to deliver the thing normally constitutes mora debitoris.

Delivery of defective performance constitutes positive malperformance. Delivery

to someone other than the contracted lessee constitutes repudiation.

Total failure to maintain the leased property amounts to mora debitoris, but where
the maintenance that was done is defective, it amounts to positive malperformance.
Failure to prevent eviction during delivery of the rental property constitutes positive
malperformance. However, if the eviction occurs later, it would amount to mora
debitoris if the lessor does nothing.

18
 STUDY UNIT 5: The obligations of the lessor

ACTIVITY
Carefully read your textbook Hutchison D & Pretorius CJ The Law of Contract
in South Africa 2nd ed (Oxford 2012) (for PVL3702) on breach of contract and
the applicable remedies. This will help you to revise very important background
information for the study units that follow.

LPL4801/1 19
 6 STUDY UNIT 6
THE LESSOR MUST DELIVER THE THING

Martin rents out his video equipment for weddings. He concludes a contract with
Mary’s mother whereby he agrees to deliver the video equipment to her on Friday
at 17:00 for Mary’s wedding. However, he subsequently fails to deliver the video
equipment. What are the lessee’s rights in this regard?

CONTENTS
6.1 THE LESSOR MUST MAKE AVAILABLE THE USE AND ENJOY-
MENT OF THE PROPERTY TO THE LESSEE
6.2 LESSEE’S REMEDIES

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the lessor’s obligation to deliver the leased thing and the remedies available
to the lessee, should the lessor fail in this regard

6.1 THE LESSOR MUST MAKE AVAILABLE THE USE AND

ENJOYMENT OF THE PROPERTY TO THE LESSEE
vacuo possessio The lessor must deliver the thing at the agreed time and place. “Delivery”, in this
instance, means that the lessor must make the use and enjoyment of the property
available to the lessee. The delivery must be such that the lessee obtains the vacuo
possessio (undisturbed possession) of the thing. The lessor must therefore ensure that,
subject to an agreement to the contrary, no one will, lawfully or unlawfully, interfere
with the lessee’s exercise of the full and undisturbed use and enjoyment of the thing.
It follows that it is the lessor’s duty to evict anyone else who is in occupation (Glover
Lease 375).

Together with the thing let, the lessor must also deliver everything without which the
thing cannot be used properly. For example, keys to the house need to be provided, a
remote control for the electric gate or a windmill on a farm must be provided. Exactly
what has been let is, of course, a question of fact. For example, the rental of a motor
vehicle should include the keys to the car, but not the petrol. Or the lease of a farm
should include the water tank, but not the farming implements (Glover Lease 376).

If the contract of lease does not stipulate the date of delivery of the leased goods
(normally the contract would specifically provide for this), the premises should
be made available to the lessee within a reasonable time after the agreement was
concluded (Glover Lease 376).

simultaneous In conclusion, you should note that a problem may exist in determining who the
renting of the same lessee is in a case where the lessor lets the same object to two different parties, but
thing
that neither party is placed in possession of the object. Who should be considered
the actual lessee?

20
 STUDY UNIT 6: The lessor must deliver the thing

EXAMPLE
This problem can best be illustrated by means of an example: Suppose that A, the
lessor, enters into a contract of lease with B, in terms of which B rents A’s thing but
before B takes possession, A leases the same thing to C. If C is not in possession
and, at the time of contracting with A, he/she was aware of the contract between A
and B, the original lessee’s (B) right prevails. B can thus prevent A from delivering
the object to C, by means of an interdict.

prior est tempore Where C contracted bona fide with A (i.e. he/she was unaware of the existence of the
potior est iure contract between A and B), the position is more complex. Some jurists consider the
prior est tempore potior est iure rule (what is first in time is first in law) to be applicable.
Accordingly, B can prevent A from placing C in possession of the thing. Other jurists
reject this viewpoint and hold that C should be given possession.
Our courts have rejected the latter view and, in a series of decisions, have followed
the view that the qui prior est tempore potior est iure rule is applicable and that B can,
therefore, prevent A from giving C possession, by means of an interdict.

6.2 LESSEE’S REMEDIES

failure to deliver If there is a breach of contract, such as where the lessor fails to deliver the thing,
the form of breach of contract is mora debitoris. If there is either a right to cancel the
contract as an express or tacit term of the contract, or a notice of rescission has been
given, the normal remedy of cancellation is available.

Where the performance on the lessor’s side is made impossible after conclusion of the
contract due to the fault of the lessor, it will amount to prevention of performance.
In both instances, specific performance is also an available remedy. Damages claimed
may include both actual and consequential loss. The rule on mitigation of loss applies.

rental property If the property is delivered on the due date, but is not up to the contractual standard
defective/ unfit for (i.e. the thing is defective or unfit for the purpose for which it was let), this is a case
purpose
of positive malperformance.
positive
malperformance
The lessee may cancel the contract if this breach is serious (i.e. totally unfit). In all
instances, there is also the possibility of an action for specific performance, and the
lessee can recover his/her loss, provided it was foreseeable, by means of an action
for damages. This action can be instituted in the case of, for example, someone
who rents a guest house only to find that two bedrooms are incomplete. The lessee
would be entitled to claim the loss of profit for those two rooms during the period
in which they are being completed if the parties had agreed that the property would
be delivered on the due date in the proper condition.

If it was understood that the lessor needed more time to complete the premises and
that the lessee would pay the rent in any event, then the lessee has no claim.

Damages claimed may include both actual and consequential loss. The rule on
mitigation of loss applies.

LPL4801/1 21
 ACTIVITY
1. Peter, the owner of a rental agency, lets a holiday home to John in a sought-
after holiday area. John pays a deposit and, as far as he is concerned, his
holiday accommodation is secured. However, before John takes possession,
Peter leases the same home to a cabinet minister for a much higher rent and
offers John alternative accommodation, albeit of an inferior kind. Whose right
prevails? How can John prevent the cabinet minister from taking occupation?
2. Reread the factual scenario at the beginning of this study unit on page 20
and advise Mary’s mother accordingly.

5 FEEDBACK
(1) See 6.1 and 6.2 above. Remember to discuss the rule prior est tempore
potior est iure. Also discuss the possible available remedies.
(2) See 6.1 and 6.2 above. Martin has breached his duty to make available
the use and enjoyment of the leased goods (the video equipment). This is
a case of prevention of performance, as performance can happen only on
the date of the wedding. The contract can be cancelled. Damages can be
claimed in both instances.

22
 7 STUDY UNIT 7
THE LESSOR MAY NOT DISTURB THE
TENANT IN HIS/HER POSSESSION – THE
DUTY TO GIVE UNDISTURBED USE AND
ENJOYMENT (COMMODUS USUS)

Mining Company XTA (the lessor) and Bongani (the lessee) conclude a lease for a
hotel. The site of the hotel is next to a national road, as a result of which the hotel
attracts considerable custom. The lessor has the road diverted and as a result, the
hotel’s profits decline considerably. Does the lessee have a remedy?

CONTENTS
7.1 THE LESSOR MAY NOT DISTURB THE LESSEE IN HIS/HER
POSSESSION
7.2 REMEDIES

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the lessor’s duty to give commodus usus

• explain the content of commodus usus
• briefly set out the facts of any relevant prescribed cases, the decisions in such
cases and the reasons for such decisions, as discussed in this study unit.
• apply the rules discussed here and any relevant prescribed cases to practical
problems

7.1 THE LESSOR MAY NOT DISTURB THE LESSEE IN HIS/HER

POSSESSION
may not disturb Once the use and enjoyment of the property has been made available to the lessee,
lessee it is obvious that the lessor may not disturb the lessee in his/her use and enjoyment
of the thing. Glover (Lease 377) also refers to commodus usus as “snugness and benefit
of occupation”.

This means the following, subject to certain exceptions:

• A lessor may not enter into the property himself/herself, nor may his/her servants
or agents do so.
The landlord should have the consent of the lessee before he/she enters the leased
property, failing which he/she will be seen as a trespasser (Soffianti v Mould 1956 4
SA 150 (E)). Certain circumstances would make the lessor entitled to demand
the right to enter, such as when he/she reasonably requires such right in order to
inspect a property or when he/she needs to effect necessary repairs. Furthermore,
the landlord will be entitled to put up a “to let” notice before the expiration of

LPL4801/1 23
 a lease agreement, and the tenant should allow persons onto the premises who
are interested in renting the premises (Glover Lease 378).
the RHA The RHA codifies these rights of the lessee. Section 4(2)–4(4) of the RHA re-
stricts the inspection by the lessor to inspections in a reasonable manner with
a reasonable notice. Section 4(3) in particular prohibits a lessor from searching
the lessee or his/her possessions, or infringing his/her right to privacy. Refer to
study unit 19, paragraph 19.3 in this regard.
• A lessor is not entitled to take the fruits of the leased property, or to graze cattle
on the pasture land let to another.
• The lessor may not exclude the lessee from the leased property or from a portion
thereof, or deprive him/her of the use thereof (e.g. he/she may not forcibly eject
the lessee, nor remove the front door, nor have the electricity disconnected). For
example, in Nino Bonino v De Lange 1906 TS 120, the lessee was reinstated with
possession of the leased billiard room by means of the mandament van spolie where
the lessor had taken possession of the keys and closed off the door.

the RHA Similar rights of the lessee have been included in the RHA (see study unit 19
par 19.7.8). For instance, section 16 (hA) makes it a criminal offence to lock out
a tenant unlawfully or to shut off the utilities to the rental property.
This may, however, be done after a court application. In Anva Properties CC
v End Street Entertainment Enterprises CC, unreported case no 22109 14 April 2015
(WC), the applicant (lessor) paid the municipality for the electricity supply to a
building and recovered that cost from the tenants. When one of the tenants fell
into arrears in excess of R300 000, the court granted the applicant an order to
terminate the supply of electricity to that lessee.
• Another instance where the court found that the lessor had disturbed the
tenant’s commodus usus was when the lessor failed to remove plastic bags blowing
onto land used for grazing of cattle (Fourie NO v Potgietersrusse Stadsraad 1987 2
SA 921 (A)).
• Although there is no general obligation on the tenant to actually use and enjoy
the property, the contract can provide for such an obligation (Edrei Investments 9
Ltd (in liquidation) v Dis-Chem Pharmacies (Pty) Ltd 2012 2 SA 553 (ECP).
Sishen Hotel – • An interesting case where commodus usus was also disturbed, according to the court,
extended commodus is Sishen Hotel (Edms) Bpk v Suid Afrikaanse Yster en Staal Industriële Korporasie Bpk
usus includes profit 1989 2 SA 931 (A), where the Appellate Division (currently named the Supreme
Court of Appeal) extended this right by interpreting the lessee’s right against
the lessor to include a restraint upon the latter to refrain from direct or indirect
conduct that negatively affects the profitability of the leased thing.
In the Sishen Hotel case, the parties had concluded a 20-year lease of a hotel. The
site of the hotel was next to a national road, which meant that the hotel attracted
considerable custom. About eight years after the conclusion of the lease, the national
road was diverted – on application and at the expense of the lessor – in order to
expand its mining operations in the area. As a result, the hotel’s profits declined and
eventually turned into losses. About three years later, the hotel was closed down
and the lessee instituted an action against the lessor for the payment of damages for
breach of contract. This claim had been dismissed by the court a quo. The appellant
raised the argument that the contract contained an implied term that the respondent
would not take any steps to interfere with the access to the hotel and prevent the
flow of custom to the hotel.

24
 STUDY UNIT 7: The lessor may not disturb the tenant

commodus usus On appeal, the court came to the conclusion that commodus usus could include the
includes profit idea of profit, where the lessee runs a business from the leased premises. The judge
found that because the lessee conducted the hotel business to make a profit, closing
or diverting the road indirectly infringed the lessee’s commodus usus. The implication
of the Sishen Hotel decision seems to be that the infringement of commodus usus can
be an indirect as well as a direct physical infringement (Hawthorne 1989 THRHR
124 129).

extension However, the Witwatersrand Local Division (currently named the South Gauteng
challenged High Court) interpreted the Sishen Hotel case differently in Sweets from Heaven (Pty) Ltd
v Ster Kinekor Films (Pty) Ltd 1999 1 SA 796 (W). The question of whether profitability
is one of the naturalia of a commercial lease or the lessee has to rely on a tacit
term once again came under the scrutiny of the courts in this case. Here, the first
respondent, Ster Kinekor, was the lessee of an entertainment centre. Ster Kinekor,
in turn, sublet premises to third parties. The first applicant, Sweets from Heaven,
had a five-year sublease with Ster Kinekor. The second applicant was a franchisee
of the first applicant and occupied the premises through the first applicant, with the
consent of Ster Kinekor. The dispute concerned the first respondent’s right to sublet
to a second respondent a shop situated virtually next door to the sweet shop of the
second applicant. Both second respondent and second applicant sold sweets,
confectionary and related products.

The applicants based their claim, firstly, on the first respondent’s failure to ensure
free and undisturbed use and enjoyment, commodus usus, of the leased premises in
allowing the second respondent to compete with the second applicant.

The judge found that the lessor had not breached its obligation of providing commodus
usus and that in order for a lessee to succeed; the lease contract would have to tacitly
or otherwise prohibit the lessor from such conduct. It was thus held that the lessor
was entitled to let business premises to competitors of the lessee virtually next door
to the latter, as no explicit or tact terms to prohibit this were included in the contract.

difference between The difference in the approaches between Sishen Hotel and Sweets from Heaven seems
the two confl icting to be that the former case regarded profitability as part of commodus usus (a naturale),
decisions
whereas the latter case dealt with the issue of profitability in the context of the existence
explained and
discussed of a tacit term. Thus, Sweets from Heaven did not interpret the decision of Sishen Hotel
to have extended commodus usus to include profit, as we might have expected, but as a
tacit term of the lease contract. The duty of the lessor to give undisturbed possession
of the leased thing is a naturale of the contract of lease. At this point, we advise you
to refresh your memory regarding the distinction between implied terms (naturalia)
and tacit terms in the general principles of the law of contract.

The judgment of the Appellate Division in Sishen Hotel takes precedence over the
ruling of the Witwatersrand Local Division in Sweets from Heaven because it is a higher
court. However, given the way Sweets from Heaven interpreted the decision in Sishen
Hotel, it would be necessary for the Supreme Court of Appeal to clarify the position
in the future.

7.2 REMEDIES
remedies Since the lessor’s obligation is negative, the lessee’s normal remedy is an interdict. For
– interdict, example, in the Soffiantini case discussed above, the lessee was granted an interdict
cancellation,
damages
to restrain the lessor from entering the premises.

LPL4801/1 25
 In the Sishen Hotel case, the court awarded the lessee cancellation of the contract and
substantial damages.

The tenant can also use the mandament van spolie to be reinstated by the court in
occupation of the premises, in addition to a claim for contractual damages, as in
the Nino Bonino case discussed above. Refresh your memory with regard to the
mandament by referring to the law of property.

Although older cases decided to the contrary (where undisturbed possession is

interfered with but not taken away completely); the lessee may institute a claim for
remission of rent (Mpange v Sithole 2007 6 SA 578 (W) 597; Ntshiqa v Andreas Supermarket
(Pty) Ltd 1997 3 SA (TkSC)).

The tenant can also raise the defence of the exceptio non adimpleti contractus if he/she is
sued by the landlord for payment of the full rent in a case where the lessor interferes
with the lessee’s undisturbed possession (Glover Lease 380). In this regard, refresh
your memory by referring to the general principles of the law of contract.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 23 and
advise Bongani accordingly.

6 FEEDBACK
Read the discussion Sishen Hotel and Sweets from Heaven cases and see 7.1
above. Also remember to discuss the applicable remedies. Refer to 7.2 above
relating to the remedies.

26
 8 STUDY UNIT 8
THE LESSOR MUST DELIVER THE
THING IN A SPECIFIC CONDITION AND
MAINTAIN IT AS SUCH

Anne is the convenor of a beer festival. In the course of her arrangements, she
contracts with a catering company for the hire of barrels for the storage of draught
beer. On the day of the festival, Anne is horrified to discover that the beer has
seeped out and the remainder in the barrels is completely flat because of the leaks
in the barrels. The value of the lost beer amounts to R5 000 and the loss of profit
amounts to R10 000. Does Anne have a remedy?

CONTENTS
8.1 THE CONDITION OF THE PROPERTY AT THE TIME IT IS MADE
AVAILABLE
8.2 THE CONDITION OF THE PROPERTY DURING THE CURRENCY
OF THE LEASE
8.3 REMEDIES
8.3.1 Cancellation
8.3.2 Specific performance
8.3.3 Remission of rent
8.3.4 Damages

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the lessor’s obligation to deliver the leased thing in a specific condition
• explain the lessor’s obligation to maintain the leased thing in the specific condition
during the currency of the lease
• explain whether this duty is a contractual duty or an ex lege warranty
• explain and apply the remedies available to the lessee where the lessor breaches
his/her obligation

8.1 THE CONDITION OF THE PROPERTY AT THE TIME IT IS MADE

AVAILABLE
condition fit for The general rule is that the property must be reasonably fit for the purpose for which
purpose to let
it was let. Fitness for purpose includes freedom from latent defects (Glover Lease 412).

LPL4801/1 27
s 4B(11) of the 2014 The common-law duty of the landlord has been codified in section 4B(11) of the
Amendment Act of
2014 Amendment Act of the RHA, whereby the landlord has to provide the tenant
the RHA
with a dwelling that is in a “habitable condition”.

The purpose of the property determines the purpose of the lease and the terms of
the lease should reflect this.

express terms Where there is an express agreement about the condition of the thing, the lessor
must naturally comply with it, for example where he/she undertakes to deliver a
thing with or without certain characteristics. An example is Poynton v Cran 1910
AD 205. A building was let as a hotel, but the hot-water installation was not in a
working condition at the time that the building was made available to the lessee.
The court first had to decide whether the lessor breached an express term of the
lease to put the premises in “thorough order and repair” inside and outside. The
court was divided on this issue, but the majority held that the lessor had breached
the common-law duty to deliver the building in a reasonably fit state. If a building
is rented out for the purpose of running a hotel, it follows that a hotel requires a
working hot-water system.

deduction from all If there are no express terms disclosing the purpose of the lease, the purpose can be
the contract terms
gathered from all the terms of the lease. An example is Frenkel & Co v Rand Mines
Produce Supply Co 1909 TS 129 131, where the court held as follows:

The lease recites that the lessees are produce merchants. It then states that
the premises are leased for use by them as business premises — from which
it follows that they were leased as a produce store…. Now when premises are
let for a special purpose our law imposes upon the landlord an obligation to
see that they are reasonably fit for that purpose, and to maintain them in that
condition.

deduction from all If the purpose of the lease cannot be determined from the terms of the contract,
circumstances it has to be determined from a consideration of all the circumstances of the lease.
The purpose of the lease is then presumed to be the use to which the premises
were previously put or the intended use, which the lessor must have known about.
For example, a building will be presumed to be used as a residential house if that
building has been used as such before. The town planning zoning of an erf on
which the building stands will also be a good indication of the purpose of the lease
of the building.

8.2 THE CONDITION OF THE PROPERTY DURING THE

CURRENCY OF THE LEASE
continuous A lease creates a number of continuous obligations. The lessor must thus ensure that
obligation the thing is reasonably fit for the purpose for which it was let during the currency
of the lease.

wear and tear The lessor need not carry out repairs due to wear and tear and deterioration that
normally follow in the course of time and through use. However, as soon as wear
and tear and deterioration reach such a stage that the property is no longer reasonably
fit for the purpose of the lease; the lessor is compelled to carry out repairs in order
to comply with the contractual obligation to keep the property in a fit state. For
example, a house must at all times be kept windproof and watertight (Glover Lease 391).

28
 STUDY UNIT 8: The lessor must deliver the thing in a specifi c condition and maintain it as such

repairs are What must be included under the term “repairs”? The fact that the landlord is liable
not structural
for repairs does not necessarily mean that he/she must make structural improvements
improvements
(except if this is necessary in view of the purpose served by the rented property); he/
she must merely repair structural defects.

application of the Sections 55 (the consumer’s right to safe, good-quality goods) and 56 (implied
CPA and RHA warranty of quality) of the CPA are not applicable to leases because they are applicable
to consumer contracts concerning “goods”. As explained in Study Guide 3 study
unit 18, paragraph 18.4, the lease of property cannot be seen as the supply of goods.
Section 54 of the CPA (consumer’s right to demand quality service) refers to the
“performance of services”, which would potentially include the lease of premises.
Glover is of the opinion that the legislature actually had the supply of work for
specific purposes in mind, rather than the letting and hiring of a thing. Also see the
discussion in Study Guide 3 study unit 18 and Glover (Lease 394).

The RHA will, however, be applicable in the instance of residential dwellings, which
offer similar protection to the lessees.

naturale This duty of the lessor is one of the naturalia of the contract of lease and the parties may
thus regulate this duty of the lessor in their contract. Sometimes the lease expressly
places the duty of repair (or a limited duty of repair) during the lease on the lessee.

where the lessee What is meant by repairs in this case? As we have seen above, the lessor need not make
undertakes to
effect repairs, he/
structural improvements, but he/she must repair structural defects. If, therefore, the
she does not have lessee undertakes to effect repairs, must he/she also repair structural defects? The
to repair structural answer can be found in Salmon v Dedlow 1912 TPD 971 979, where the court held that
defects
[the lessee] will only be liable to make such repairs as are ordinarily required
if he undertakes to keep a house in a good condition. He will not be required,
either by his contract or by the common law, to make structural alterations to
ensure its freedom from leaking.

parts need From all the case law on this matter, the principle may be deduced that subsidiary
replacing or parts of the property must be replaced or renewed by the lessee (where he/she has
renewal; not the
whole undertaken to do repairs), but that he/she need not renew the whole thing so as to
ensure its continued existence. Where the existence of a thing is threatened by, for
example, the effluxion of time, the maxim res perit domino (the thing perishes to the
prejudice of the owner) may well be applied. Naturally, however, the lessee will be
liable where the deterioration is due to his/her failure to effect ordinary repairs.

whole to be This question (where the tenant has undertaken to do repairs) came up for consideration
replaced where in Sarkin v Koren 1950 1 SA 495 (C). Here, a lessee had undertaken to maintain the
lessee neglected
duty of repair
buildings in a proper state of repair, inside and outside, and a dispute arose about a
thatched roof that became dilapidated during the time of the lease. In an action for
ejectment on the ground that the lessee had neglected repairs and had allowed the
roof to become dilapidated, the court decided (515) that the plaintiff had discharged
the onus on him of proving that at the commencement of the lease the roof was in a
proper state of repair and in a condition which, subject to adequate maintenance by the
defendant (lessee) in terms of his undertaking, would have fulfilled the requirements
of the tenancy until its termination. In other words, if the lessee had not neglected
ordinary repairs, the roof would have lasted the whole course of the lease.

LPL4801/1 29
lessee not The lessee is also not obliged to improve the roof in the sense of returning it to the
obliged to effect
improvements
lessor in a better condition than it was in when he took occupation.

This statement seems to imply that, where the roof is no longer capable of repair,
the lessee will not be obliged to put on a new roof; such a renewal must be done by
the landlord, unless the renewal was necessitated by the lessee, not performing his
maintenance duties. Of course, it is all a question of the construction of the lessee’s
covenant in the lease agreement; it may well be that the lessee has undertaken to
effect renewals, in which case he/she is bound by his or her undertaking.

8.3 REMEDIES
type of breach If the lessor fails to deliver the property in a condition that makes it reasonably fit
for the purpose for which it was let, the lessor commits positive malperformance.
Failure by the lessor to maintain the property in such condition amounts to mora
debitoris. This is a case of mora ex persona and the lessor will be in mora only after the
lessee has notified the lessor of the breach.

8.3.1 Cancellation
cancellation If the condition of the property on delivery is such that the property is unfit for
the purpose for which it was let and this amounts to a major breach, the lessee may
cancel the lease. If, during the currency of the lease, the property falls into an unfit
condition, the lessee must notify the lessor thereof and give a reasonable time for
the repairs to be effected, but if the property is not or cannot be repaired, the lessee
may cancel the contract.

8.3.2 Specific performance

specific Initially the courts refused to order specific performance because of the difficulty
performance in supervising repair work (Marais v Cloete 1945 EDL 238). This view has often been
should be an
option criticised as an unwarranted generalisation. The fact that some obligations to repair
are perhaps too vague for specific enforcement does not mean that obligations to
repair are, as a class, too vague for specific enforcement. In more recent decisions,
the courts no longer take this view and are willing to make an order for specific
performance (ISEP Structural Engineering and Plating (Pty) Ltd v Inland Exploration Co
(Pty) Ltd 1981 4 SA (A), Mpange v Sithole 2007 6 SA 578 (W)).

The lessee may obtain more or less the same result (i.e. the result of specific
performance) by making the repairs himself/herself and deducting the costs from
the rent (set-off). But the lessee may do this only after the lessor has failed or refused
to comply with the lessee’s demand for repairs. Therefore, if the lessee adopts this
course without prior notification to the lessor and without giving the lessor reasonable
time to do the repairs, the lessor is not liable for the cost of repairs.

Here, again, you must note the meaning of “repairs”. The tenant may employ this
remedy only in the case of ordinary repairs; he/she cannot employ this device to
effect structural improvements. This was emphasised in the Poynton case. The court
(227) stated that “this right is confined to repairs properly so called; that is to say,
to the remedying of such dilapidation and flaws as unreasonably interfere with the
use of the property for the contemplated purpose”.

30
 STUDY UNIT 8: The lessor must deliver the thing in a specifi c condition and maintain it as such

8.3.3 Remission of rent

failure to repair If the lessor fails to comply with the lessee’s request for repairs, the lessee may
continue to suffer the inconvenience, which must not be of a minor nature, if the
lessee decides not to cancel or does not have the right to cancel; in that case, the
lessee may claim a remission of rent in accordance with the degree of inconvenience
suffered. Bradfield & Lehman (Sale and Lease 149) correctly state that this principle
follows from the reciprocity of the obligations undertaken by the lessor and the
lessee. In essence, this is a claim for damages.

repairs If the lessor does the necessary repairs to the premises, the tenant can stay on if it
is possible and safe to do so and simply claim remission of rent while the repairs
are ongoing.

8.3.4 Damages
consequential The lessee may claim contractual damages for loss suffered as a result of the breach
loss: actual or of the duties to place and maintain the leased property in a certain condition in
constructive
terms of the contract (e.g. for the draught beer that runs out of a leaking hired
knowledge
required barrel). Consequential loss (e.g. the loss of profit), can, however, be claimed only if
the lessor knew or ought to have known (constructive knowledge) of the breach.
For a critical discussion of the common law and the case law, see Glover (Lease
397–402). This draws into the claim some sort of a fault-based factor, which is not
a general requirement in South African law for a claim based on breach and cannot
be justified (Glover Lease 402).

constructive Knowledge can be imputed to the lessor if he/she should have known by reason of his
knowledge or her trade or vocation (Heerman’s Supermarket (Pty) Ltd v Mona Road Investments (Pty)
Ltd 1975 4 SA 391 (D) 394), but this may also be imputed from other circumstances
(Nanucci v Wilson & Co (1894) 11 SC 240 244).

Where the lessor expressly guarantees that the leased thing will be fit for its purpose
or free from defects at the time of delivery, no actual or constructive knowledge will
be required before liability for damages arises. Neither will liability for loss arise if
the lessee knew that the leased thing was not fit for purpose at the time of delivery.
There is, however, no duty on the lessee to inspect the leased thing on delivery.

ACTIVITY
Reread the scenario at the beginning of this study unit on page 27. Will the
catering company be liable for the consequential loss caused by the defect in
the barrels?

7 FEEDBACK
It seems as if the barrels had a latent defect when they were delivered to Anne,
which constitutes a breach of contract. As a consequence, Anne suffered the loss
of the beer and profit (consequential damage). Our positive law requires knowledge
of a defect – or at least constructive knowledge – before a landlord will be held
liable for the consequential damages. There is no indication that the lessor had
actual knowledge of the defect, and we cannot impute knowledge of such defect to
the lessor from the mere fact that the lessor is a catering company. Furthermore,

LPL4801/1 31
 no express guarantee was given regarding fitness for purpose. It is thus highly
possible, while looking at the facts, that the catering business will not be liable
for the consequential loss. (See in particular par 8.3.4 above.)

32
 9 STUDY UNIT 9
THE LANDLORD MUST GUARANTEE THE
TENANT AGAINST EVICTION

Jane looks after Mary’s town house while she (Mary) is overseas. Jane leases the town
house to Peter without Mary’s permission. On her return, Mary evicts Peter because
she needs to occupy the town house. Does Peter have a remedy?

CONTENTS
9.1 WARRANTY AGAINST EVICTION
9.2 REMEDIES
9.2.1 Cancellation
9.2.2 Damages

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the lessee’s rights against a landlord, where the lessee is evicted
• explain the lessee’s remedies in the event of eviction

9.1 WARRANTY AGAINST EVICTION

lessor The warranty against eviction binds the lessor to compensate a lessee who was
must compensate evicted from the whole or part of the property by a third person with a better title.
evicted lessee
Thus, if the lessor has no title and the owner ejects the lessee, the lessor is liable for
damages, unless the lessee was aware of the lessor’s lack of title.

notice The warranty against eviction in the instance of lease is similar to the warranty against
eviction in the instance of sale. For instance, if any uncertainty exists whether the
third party’s claim to have better title is valid, the lessee will have to continue paying
the rent if he/she chooses to leave the property as soon as he/she is threatened by
the third party (Glover Lease 413). The lessee is supposed to notify the lessor, who
should assist in resolving the situation while the lessee continues to occupy the
premises. If the lessor’s and lessee’s titles are not defensible, however, the lessee is
entitled to vacate the premises immediately and claim for damages.

This raises an important question, namely whether the lessee can prohibit eviction
if an action is successfully instituted against him/her. The answer would be no,
unless the lessee has a real right by operation of the huur gaat voor koop rule (Glover
Lease 413–414). The tenant’s real right is explained in study unit 10. At this stage,
it is important to note that not all lessees are granted a real right by virtue of their
valid lease agreements. The following case illustrates this well.

LPL4801/1 33
Glatthaar v Hussan In Glatthaar v Hussan 1912 TPD 322, the plaintiff owned a portion of a farm. He
sold it to one Coetzee, who took possession and, before acquiring ownership, let the
property to the defendant, who took occupation. Coetzee did not become the owner
at any time because he failed to pay the purchase price and the plaintiff cancelled
the sale. After the sale had been cancelled, the owner sued the tenant for ejectment,
whereupon the defendant pleaded that he was lawfully in possession as a lessee, that
he had paid four years’ rent in advance, and that the plaintiff was bound to recognise
his position. The plea failed and an order of ejectment was granted.

The court decided that the huur gaat voor koop rule, which enables the lessee to evict
the owner from the land, must be acquired from the owner of the land – and from
him/her alone.

This means that the tenant had a remedy against Coetzee, based upon eviction,
but that he had no remedy against the owner.

The same applies if the lessor originally had adequate title, but allowed it to lapse
before the end of the lease, for example by failing to pay licence fees on the payment
of which his/her title depended.

A lessor may validly let something belonging to another. Furthermore, the lessor does
not guarantee his/her title. The only obligation resting on the lessor is to place the
lessee in undisturbed possession (see study unit 6) and to ensure his/her possession.

warranty excluded The warranty does not apply if the disturbance is attributable to an act of God,
by act of God which includes expropriation.

It also does not apply where the third party does not have a claim to a better title.
In such a case, the lessee may take action against the third party himself/herself,
and the lessor and the landlord will be able to eject the trespassers, subject to the
provisions of the Prevention of Illegal Eviction from and Unlawful Occupation of
Land Act 19 of 1998 (PIE), as discussed in study unit 14 paragraph 14.7.

CPA and warranty Section 44 of the CPA is probably not applicable to lease agreements as this section
against eviction in only applies to the supply of goods. The section is further explained in Study Guide
respect of leases
3, study unit 21, paragraph 21.3.
section 44 of the
CPA

9.2 REMEDIES

9.2.1 Cancellation
cancellation if The remedies in the event of eviction are the usual remedies encountered in contracts
totally evicted of sale, with the proviso that a lessee may certainly rescind or cancel the contract if
he/she is totally evicted, or evicted to a serious degree.

9.2.2 Damages
damages only A lessee who enters into a lease while knowing – or who ought to have known – that
when lessor the lessor’s title is limited, has no right to damages if he/she is required to leave as
terminates rights
a result of the termination of the lessor’s title. However, the lessee will, irrespective
voluntarily
of his/her knowledge, have a right to damages if the lessor terminates his/her right
of his/her own volition, for example by surrendering it.

34
 STUDY UNIT 9: The landlord must guarantee the tenant against eviction

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 33 and
advise Peter accordingly.

8 FEEDBACK
The important thing to determine here is whether or not there is certainty in respect
of Mary’s claim to the property. In this case, Mary is the owner. Therefore, Peter
– as lessee – will have to vacate the property, cancel the lease agreement and
sue Jane (the lessor) for damages, based on eviction. However, Peter will not
have a remedy against Mary according to the Glatthaar case, as he (Peter) does
not have a real right. (Also see paragraphs 9.1 and 9.2 above.)

LPL4801/1 35
 10 STUDY UNIT 10
THE TENANT’S REAL RIGHT

Steve is renting a farm, Blauklippen, for commercial farming purposes from Black
Star (Pty) Ltd. The term of the lease agreement is 15 years and the lease agreement
was duly registered against the farm Blauklippen’s title deed. Two years later, Black
Star (Pty) Ltd sold the property to Xoliso Mining Corporation, who bought the farm
for mining operations. The farm is duly registered in Xoliso Mining Corporation’s
name. The latter company did not inspect the title deed before it purchased the farm
and, therefore, did not notice that the lease was registered against the title deed. After
registration, the representatives of Xoliso Mining Corporation discovered Steve’s
presence on the farm and immediately applied for a court order to eject him. Steve
wants to know whether he, as the lessee, has any remedies.

CONTENTS
10.1 INTRODUCTION
10.2 THE ESTABLISHMENT OF THE TENANT’S REAL RIGHT
10.2.1 Long leases
10.2.2 Short leases
10.3 THE EFFECT OF THE TENANT’S REAL RIGHT

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain what the huur gaat voor koop rule means

• explain to which types of leases the huur gaat voor koop rule applies
• explain how the lessee’s real right is established
• explain the difference between onerous and gratuitous successors
• explain the effect of the lessee’s real right
• apply the rules discussed and any relevant cases to practical problems

10.1 INTRODUCTION
The Roman-Dutch rule of huur gaat voor koop (the rule that “lease takes precedence
over purchase”) also applies in South Africa (Genna-Wae Properties (Pty) Ltd v Medio-
Tronics (Natal) (Pty) Ltd 1995 2 SA 926 (A)). The rule applies to leases of houses and
land, but not to the lease of movables.

In this study unit we will try to determine the nature of the lessee’s real right in
accordance with the huur gaat voor koop rule. In general, a contract gives rise to personal
rights only between the contracting parties. However, in certain circumstances
where the huur gaat voor koop rule provides the tenant with security of tenure, a lease
agreement can give rise to a real right that can be exercised against the landlord-
owner’s successors in title. In this study unit we will also be investigating the
circumstances in which the tenant will obtain a real right.

36
 STUDY UNIT 10: The tenant’s real right

10.2 THE ESTABLISHMENT OF THE TENANT’S REAL RIGHT

lessee always has a The contract itself offers enough protection between the parties to the contract: the
personal right inter lessee can enforce his/her right against the lessor, even if he/she is not in possession
partes
of the premises and even if his/her right has not been registered. The contractual
agreement gives rise to personal rights between the lessor and the lessee.

possession or Depending on whether we are dealing with a short or a long lease, however, possession
registration or registration is a requirement for the establishment of the lessee’s real right.

10.2.1 Long leases

longer than 10 A lease for more than 10 years qualifies as a long lease.
years
legislation The legal position regarding long leases is regulated by legislation (s 1(2) of the
and common law Formalities in Respect of Leases of Land Act 18 of 1969) and the common law, as
adapted by the South African courts. Our courts replaced a Roman law distinction
between “singular” and “universal” successors (which distinction does not exist
in the modern law of succession and, therefore, has no meaning in modern South
African law) with the distinction between gratuitous successors (successores lucrativi)
and onerous successors (successores onerosi),

distinction A gratuitous successor is someone who gives no counter-performance for the property,
between gratuitous such as the inheritor or donee of property. An onerous successor is someone who
and onerous
successors
gives counter-performance for the property, such as a buyer.

legal position The legal position can be summarised as follows:

summarised: long
leases (1) Successores lucrativi are always bound by the lease for the full period of the lease
agreement.
(2) Successores onerosi and creditors are bound for the full period of the lease in the
following circumstances:
(a) If the lease was registered against the title deed of the property. A lessee is
entitled to have a long lease registered and to compel the lessor to render
his/her assistance to effect registration (Glover Lease 525).
(b) Where the successor or creditor knew of the long lease (doctrine of
knowledge) at the time of entering into the transaction by means of
which he/she obtained the leased land, or obtained a real right in respect
thereof, even if the lease was not registered. The onus of proving the
requisite knowledge rests on the lessee. According to Glover (Lease 523), it
is uncertain at which time the successor should have had knowledge
of the lease in order for the lessee to be protected. Although it looks
like the courts favour the date of sale as the time of knowledge, the
modern writers are highly critical of this and recommend that the date
of registration of the property in the deeds registry be used instead.
This will obviously have an effect on the lessee’s protection, so the law
needs clarification in this regard.
(3) Even if the lease is not registered, and if the successor onerosus or creditor did not
know of the existence of the lease, he/she is still bound for the first 10 years
of the lease, if the lessee is /was in possession of the leased property. In
other words, in this case, the lessee is protected for the duration of a
short-term lease, if he/she is/was in possession.

LPL4801/1 37
 10.2.2 Short leases
A lease for a period less than 10 years qualifies as a short lease. Short leases are
regulated by the common law, as adapted by the South African courts. The protection
of the lessee can be summarised as follows:

legal position: (1) The lessee’s real right vests on his/her obtaining occupation of the leased
short leases property. Occupation is an overt sign to prospective purchasers and all other
third parties that there is a lease agreement in place, and this explains why
the lessees should be protected under these circumstances (Glover Lease 517).
(2) Even if the lessee fails to take occupation, he/she will be protected for the
full term of the lease against
(a) a gratuitous successor; and
(b) the onerous successor who knew of the lease’s existence (doctrine of
notice).
The lessee who has not taken occupation, will not be protected against creditors of
the lessor (Glover Lease 517).

10.3 THE EFFECT OF THE TENANT’S REAL RIGHT

lessee protected In certain circumstances, the lessee acquires a real right over the leased thing. This
against third principle is usually expressed in the Roman-Dutch maxim huur gaat voor koop, as
parties
discussed above. However, this maxim does not mean that it is only the buyer’s
right that has to give way to the lessee’s; it applies to the rights of anyone who has
established rights to the thing (i.e. any successor in title) after the lessee’s right has
been established. This maxim merely illustrates that the lessee has a real right and
that the tenant’s real right enjoys preference if it conflicts with any other subsequent
vested rights. Thus, if the right of a holder of a mortgage or servitude is vested
after that of the lessee, the right of the former must give way to the lessee’s right.
In addition, the right of the lessee is given preference over purely personal rights,
irrespective of the time when they were vested. Therefore, non-preferent creditors
of the lessor are always bound by the lessee’s real right. The effect of the real right of
the lessee is that no one can disturb him/her in the exercise of his/her right during
the currency of the lease.

not protected Expropriation is a form of original acquisition of ownership and is not derived. The
in the case of huur gaat voor koop rule therefore does not apply.
expropriation
position of the new In respect of the alienation of the property let, the question arises whether the new
owner
owner will, apart from having to allow the lessee to continue in his/her possession,
also take over from the original lessor as debtor and creditor in terms of the contract
of lease.

general principles: According to general principles, this is impossible. Claims are transferred by cession
cession and and obligations by delegation (see study unit 17 below). According to the general
delegation are
necessary principles of our law, we would therefore say that the new owner need only tolerate
the lessee’s exercise of his/her real right; it does not mean that the new owner
simultaneously takes over the rights and obligations of the lessor.

38
 STUDY UNIT 10: The tenant’s real right

new owner However, our courts take a different stance on the matter. It is said that as soon as
replaces lessor ex the new owner has taken transfer, he/she – as the owner – is entitled to the rent.
lege
Furthermore, by alienating the property, the seller releases himself/herself from
his/her obligations in terms of the contract of lease, so that his/her obligations
will now rest on the buyer. This was clearly stated in Genna-Wae Properties (Pty) Ltd v
Medio-Tronics (Natal) (Pty) Ltd 1995 2 SA 926 (A) [939A–C]:

lessee has no ..in terms of our law the alienation of leased property consisting of land or buildings
choice but in pursuance of a contract of sale does not bring the lease to an end. The purchaser
to accept the
substitute of the
(new owner) is substituted ex lege for the original lessor and the latter falls out
new owner as of the picture. On being so substituted, the new owner acquires by operation
lessor of law all the rights of the original lessor under the lease. At the same time
the new owner is obliged to recognise the lessee and to permit him to occupy the
leased premises in terms of the lease, provided that he (the lessee) continues to pay
the rent and otherwise to observe his obligations under the lease. The lessee, in
turn, is also bound by the lease and, provided that the new owner recognises
his rights, does not have any option, or right of election, to resile from the
contract. This is the impact of huur gaat voor koop in our modern law [our emphasis].

which terms are In accordance with the course the courts have taken, it is said that the buyer is bound
included in the by all the terms of the lease. If the actual terms of the lease differ from the apparent
lease with the new
landlord?
terms, for example where a lease that is in writing has been amended orally; the buyer
is bound by the actual terms. In Masstores (Pty) Ltd v Pick n Pay Retailers (Pty) Ltd and
Another 2016 2 SA 586 (SCA), there was a term of exclusivity in the lease agreement
between Pick n Pay and the lessor, granting Pick n Pay the sole exclusive right to
trade as a supermarket in the shopping mall. The lessor had sold the mall to a new
owner at a later stage. The court has correctly decided that the right to exclusivity
made an integral part of the lessee’s (Pick n Pay) lease agreement, and that it could
therefore enforce this right against the new owner of the shopping mall as well.

option in lease Where there is an option to buy in the lease agreement, and the lessor sells the property
agreement to a third party, the said option will not be transferred by operation of law to the
buyer of the property. The lessee will have to seek redress from the original lessor.
However, where the purchaser was aware of the option, he/she will be bound by it
(Spearhead Property Holdings (Pty) Ltd v E&D Motors (Pty) Ltd 2010 2 SA 1 (SCA) [61]).

ACTIVITY
1. Read the factual scenario at the beginning of this study unit on page 36 and
advise Steve accordingly.
2. Would your advice to Steve be different if the lease were not registered?
Discuss.

9 FEEDBACK
(1) Steve’s long lease (longer than 10 years) is registered against the title deed
of the leased property. The registration of a long lease grants the lessee a
real right against all kinds of successors, including successors who bought
the leased property (successores onerosi). Steve is therefore protected. His
lease agreement will have to be honoured by the new owner, whether the
latter knew of the lease or not. The new company will step into the shoes
of the old owner as lessor. Steve will also have to abide by the “new” lease
between him and the new owner (by virtue of the ruling in the Genna-Wae
Properties case). Refer to the discussion in 10.1- 10.3 above.

LPL4801/1 39
 (2) Steve’s legal position has now changed, as he will be protected for only 10
years. Steve will not be protected for the full period of 15 years because
the lease was not registered and the mining company did not know about
the lease; furthermore, the mining company is an onerous successor. Steve
had occupation of the property, which means that he will be protected for a
maximum of 10 years. The mining company will still step into the shoes of
the original lessor. See the discussion in 10.1–10.3 above.

40
 11 STUDY UNIT 11
REMISSION OF RENT

John concludes a contract of lease with Peter in terms of which John leases from
Peter 10 large stands for a period of 25 years. He proposes to use these stands to
establish a riding school. John undertakes to pay a monthly rental of R20 000. After
six years, the state expropriates half the stands in order to build a primary school.
Consequently, John’s riding school is no longer able to operate at full capacity. You
may assume that the contract of lease was a valid registered long-term lease agreement.

CONTENTS
11.1 WHAT IS REMISSION OF RENT?
11.2 WHAT IS MEANT BY VIS MAIOR AND CASUS FORTUITUS?
11.2.1 Drought
11.2.2 Commercial leases
11.3 ABANDONMENT OF PROPERTY
11.4 AMOUNT OF REMISSION
11.5 THEORETICAL EXPLANATION OF REMISSION OF RENT

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain what is meant by remission of rent

• explain what is meant by vis maior and casus fortuitus
• explain when abandonment of property is possible
• explain by what amount the rent can be reduced
• briefly discuss the theoretical explanation of remission of rent

11.1 WHAT IS REMISSION OF RENT?

naturale The rule regarding remission of rent is a naturale and the parties may, as they often
do, regulate the position themselves in the lease contract.

breach of contract We have already encountered remission of rent as a remedy of the tenant for breach
of contract by the lessor involving the deprivation or disturbance of the lessee, either
in whole or in part, of the use and enjoyment of the property. In this regard, see
study units 7 and 8.
vis maior or casus
fortuitus The lessee is also wholly or partially released from his/her obligation to pay the
rent if he/she is prevented by vis maior or casus fortuitus from having the full use and
enjoyment of the thing. We will focus on this aspect of remission in this study
unit.

LPL4801/1 41
 11.2 WHAT IS MEANT BY VIS MAIOR AND CASUS FORTUITUS?
description Vis maior refers to a superior power of force that cannot be resisted or controlled.
Casus fortuitus (a species of vis maior) is an exceptional or extraordinary occurrence
not reasonably foreseeable. Thus to be vis maior or casus fortuitus, the occurrence must
be uncontrollable and unforeseen.

examples Examples of vis maior are lightning, floods and earthquakes, and, in some cases,
human actions, for example war, and expropriation determined by legislation. The list
is endless. We will briefly refer to one example which is relevant in a South African
context, namely drought.

11.2.1 Drought
Drought is exceptional and unpredictable. In certain South African regions, droughts
are commonplace and should thus not be considered as vis maior in these regions; in
other regions, however, drought may well be considered as vis maior.

Once the crops have been reaped (i.e. a separation of the fruits has taken place), the
lessee naturally becomes owner of the crops, and any loss of the crops thereafter
must be borne by the lessee for res perit domino (the loss of the thing is to the prejudice
of the owner).

11.2.2 Commercial leases

The principle of remission of rent is applicable to commercial leases as well, but the
form of vis maior is usually of another variety. An example is Baylee v Harwood 1954 3
498 (A). The purpose of the lease of buildings was to conduct a health and pleasure
resort. Trading licences were required for the businesses and were previously granted.
New public health bylaws were promulgated during the lease and the health authority
refused to issue a certificate, which was a prerequisite for the issuing of the trading
licences, unless extensive additions were made to the buildings. The tenant refused
to make these additions and vacated the property. The Appellate Division found
that such legislative changes were not reasonably foreseeable. The court held that
vis maior had occurred and that the tenant was entitled to remission of rent from the
date that he vacated the premises.

Remission may not be claimed if a commercial lease proves to be less profitable than
expected, because it would amount to a foreseeable possibility.

11.3 ABANDONMENT OF PROPERTY

Where loss is caused by vis maior, the lessee may either claim remission or abandon
the property (where the loss is so serious that the leased property becomes useless).
An abandonment of the property may be justifiable even though the loss is only
imminent. So, for instance, the approach of an enemy force justifies the lessee’s
abandoning the property. Where a tenant justifiably abandons the property, he/she
is naturally only liable for rent for his/her period of occupation.

Whether a release or remission is also granted for the period of occupation depends
on whether the thing has become unfit for the purpose for which it was let. Our
positive law dictates that remission is triggered by vis maior, notwithstanding the fact

42
 STUDY UNIT 11: Remission of rent

that the lessee is still occupying the premises, provided that the leased property is
no longer fit for its purpose.

11.4 AMOUNT OF REMISSION

subjective test The amount of remission is within the court’s discretion and will be in proportion to
the deprivation or loss in the use and enjoyment of the property. The test is subjective
and factors peculiar to the tenant will be taken into account.

not trivial The interference with the use and enjoyment may not be trivial, although some
uncertainty exists whether a higher standard is required. For instance, in Hansen,
Schrader & Co v Kopelowitz 1903 TS 707, the court proclaimed that the use of the
property has to be diminished to a considerable extent (Glover Lease 421).

set-off of profits in Some of the old authorities think that the excellent profits of one year should be
previous years set off against the meagre crops of another year. In other words, if the lessee has
one very good year, he/she cannot complain if he/she is not so fortunate the next
year. However, these are all matters that will be taken into account by the court in
assessing the amount of remission. Where the lessee has paid in advance, he/she
may, of course, recover from the lessor.

Remission may be claimed from the date of the vis maior, and if the full rental has
been paid, it may be reclaimed with an enrichment action.

11.5 THEORETICAL EXPLANATION OF REMISSION OF RENT

possible theoretical A distinction should be made between an instance where remission of rent is
explanations claimed as a remedy for the lessor’s breach of contract and an instance where
remission is claimed after vis maior (or casus fortuitus) has occurred. Where
it is a remedy for breach of contract, it is a special remedy that allows the lessee to
reduce his/her counter-performance where the lessor’s performance of the use and
enjoyment of the rental thing has been diminished. A lease contract is a reciprocal
contract and a party may usually only enforce counter-performance after performing
himself/herself fully.

The theoretical explanation of the availability of remission after vis maior is much
more complex. Academic writers have suggested two possibilities: it is a manifestation
of supervening impossibility of performance or a supposition (assumption).

De Wet and Van Wyk (Kontraktereg 366) are of the view that the rule is nothing but
an expression of the principles of supervening impossibility of performance. Where
circumstances beyond the control of the parties make it impossible for the lessee to
have the full use and enjoyment of the thing, they hold that it is really the lessor’s
performance that has become impossible. The lessee will consequently be released
wholly or in part from his/her own performance, which is to pay the rent, on the
ground of the reciprocal nature of the obligations in a contract of lease.

It must be conceded that in some cases where the doctrine is applied, it can indeed
be said that the lessor’s performance has become impossible. After all, the lessor
must deliver the property in such a condition that it is suitable for the purpose for
which it has been let, and he/she must also maintain it in that condition. If the
thing becomes unsuitable for that purpose as a result of vis maior ensuing after the
conclusion of the agreement, the lessor’s performance becomes impossible.

LPL4801/1 43
 However, from the above instance, there are other cases that come under the rule in
question, but where nothing is amiss with the condition of the property rented (e.g.
where droughts or locusts have destroyed the lessee’s crops). Only if it is the lessor’s
duty, not only to deliver and maintain the property in a specific condition,
but also to ensure that the lessee can use the property in a profitable manner,
would there be any question of supervening impossibility of performance. However,
is this not too much to expect of a landlord? If it is, then the abolition of the doctrine
is the obvious step to take, so that only the principles of supervening impossibility
may bring about any remission of rent in these circumstances.

A number of authors have suggested that the continuous full beneficial use and
enjoyment of the property was an assumption or supposition upon which the parties
contracted and, therefore, on failure of their supposition, the lessee is entitled to
claim remission of rent as enrichment, because he/she would be impoverished if
full rental had to be paid (De Vos Verrykingsaanspreeklikheid 155; Cooper Landlord
201; Glover Lease 420–421).

ACTIVITY
Reread the activity at the beginning of this study unit on page 41 and advise John
accordingly.

10 FEEDBACK
Firstly, take note that because the premises were expropriated, John will not have
a real right against the state (see study unit 10, par 10.3). Secondly, eviction has
not occurred (see study unit 9). There is no breach of contract from Peter’s side.
The question deals with remission of rent, because expropriation is an instance
of vis maior. Define remission of rent; define vis maior and casus fortuitus and
give examples thereof; explain that the lessee may claim either remission or
abandonment, and that the amount of remission is within the court’s discretion.
Refer to 11.1–11.4 above.

44
 12 STUDY UNIT 12
COMPENSATION FOR IMPROVEMENTS

Michael leases a farm. During the lease period and with the lessor’s consent, Michael
effects the following improvements: He plants a few trees, sows mealies, erects a
new security fence and builds a dam. He also fixes a leaking roof by replacing some
broken roof tiles. When the term of the lease expires, Michael institutes a claim
for compensation for each of the improvements.

CONTENTS
12.1 INTRODUCTION
12.2 TO WHICH TYPE OF LEASES DO THE PLACATEN APPLY?
12.3 AGRICULTURAL LEASES
12.3.1 Trees
12.3.2 Crops
12.3.3 Annexures
12.3.3.1 The meaning of “annexures”
12.3.3.2 Annexures made without lessor’s consent
12.3.3.3 Annexures made with the lessor’s consent
12.3.4 Necessary improvements
12.4 OTHER LEASES
12.5 REMOVAL OF PROPERTY BY THE LESSEE
12.5.1 Agricultural leases
12.5.2 Other leases

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the type of leases to which the Placaten apply

• explain the position regarding improvements on agricultural leases
• explain what is meant by an “annexure”
• explain the position regarding improvements on other leases
• explain the lessee’s right to remove the annexure

12.1 INTRODUCTION
In appropriate circumstances, the lessor must, on the expiry of the lease, compensate
the lessee for improvements to the leased property. Where the parties provide for
this matter in the contract itself, it gives rise to no particular problems. The position
is more difficult where the contract contains no such provision, because the position
is not uniformly provided for in our law and the law is currently a mixture of Dutch
law and the common law of enrichment, depending on the type of property.

LPL4801/1 45
Placaten applicable Our law relating to the lessee’s rights to compensation for improvements is partly
in SA contained in articles 10–13 of a placaat of the States of Holland and West Friesland
(Sept 1958). The purpose of the Placaten was to curb the abusive practice of lessees
of effecting expensive useful improvements in the hope that the lessor would not
be able to compensate the lessee for it and thus allow the lessee to exercise his/
her common-law right (a lien) to remain on the property until compensated.

Although these enactments severely restrict the lessee’s rights at common law, the
South African courts have unwaveringly applied them since 1893 (De Beers Consolidated
Mines v London and South African Exploration Co (1893) 10 SC 359; Van Wezel v Van
Wezel’s Trustee 1924 AD 409).

12.2 TO WHICH TYPE OF LEASES DO THE PLACATEN APPLY?

Placaten apply only Articles 10–13 mention only a lease of land, which means the common law of
to leases of rural enrichment should still apply to all other leases. The South African courts initially
land applied the Placaten to urban property as well, but in Business Aviation Corporation
(Pty) Ltd v Rand Airport Holdings (Pty) Ltd 2006 6 SA 605 (SCA), the Supreme Court
of Appeal held that the Placaten apply only to rural leases and not to urban leases.

Placaten not According to our positive law, articles 10 and 11 do not apply where the lease is
applicable where terminated as a result of the fault of the lessor (Lubbe v Volkskas Bpk 1991 1 SA 398
the lease is (O)). In that event, the lessee will have the same remedies as a tenant of urban property.
terminated as a
result of the fault
of the lessor
12.3 AGRICULTURAL LEASES
lessee can Here we must distinguish between annexures, improvements that are not annexures,
claim compensation
trees and crops. The lessee cannot (in the absence of express agreement) claim
for annexures only
any compensation for improvements that are not annexures.

12.3.1 Trees
Article 13 reads as follows:

That in future no one shall be liable to pay to tenants, or their heirs, any compensation
for any plantings, plantations or orchards unless the tenant can legally prove that they
had an instruction or command, from the owners, in which case, and not otherwise,
the owner shall pay compensation to the lessee at the price the trees cost at the time
of the planting and no more [translated].

no agreement, In other words, in the absence of an agreement for compensation, the lessee does
no compensation not get any compensation for the planting of trees. And where the lessor merely
for trees
promises to pay, without fixing the amount, the lessee gets only the price of the
trees at the time of planting.

12.3.2 Crops
no agreement, Article 10 of the Placaten provides that the lessee is entitled to a reasonable amount
still entitled of compensation (at the discretion of the judge) for ploughing, sowing and seed,
to compensation
for ploughing, whether or not he had the consent of the lessor. Since the land is let for agricultural
sowing and seed purposes, the lessor’s consent is not necessary, for an agricultural lease implies

46
 STUDY UNIT 12: Compensation for improvements

ploughing and sowing. The lessee may therefore recover compensation for ploughing
and sowing; even though the lessor did not expressly give his/her consent.

crops planted with In two cases, the courts have refused to apply article 10 to situations where the
the expectation lessee has planted with the reasonable expectation that the crops would mature
that they would
mature in time before the termination of the lease, but they failed to do so (e.g. because of a
very cold winter). The courts held that, in this instance, the lessee has a right to
re-enter and reap the crops, as the lessor should not be enriched at the expense of
the lessee (Hansen and Latelle v Crafford (1909) 26 SC 426; Japhta v Mills’ Executors 1910
EDL 150). Although there are many obiter dicta by courts criticising this rule, Glover
(Lease 567) concludes that the rule in the Hansen case should be accepted as correct
as it is firmly based on principles of enrichment. The lessee, furthermore, has no
other alternative, as removing the crops prior to their maturation would lead to its
destruction.

12.3.3 Annexures

12.3.3.1 The meaning of “annexures”

Annexures include fences, dams, bridges and aqueducts. Where the improvements
do not amount to annexures, no compensation is payable. It is also conceivable that
some soil erosion work may, for instance, not amount to annexures, with the result
that it would not be eligible for compensation.

12.3.3.2 Annexures made without lessor’s consent

may remove Article 12 reads as follows:
annexure
And if any structure is erected without the consent of the owner, the lessee shall be
bound before the expiration of the lease to actually break down and remove the
materials from the ground, under penalty that whatever shall be found thereon after
the prescribed time, shall come to and remain for the benefit of the owner [translated].

The lessor therefore obtains such annexures without payment of compensation, but
the lessee may remove them.

Article 12 places no limitation on the removal of annexures. According to Roman-

Dutch authority, the lessee may remove such structures only if such removal does
not harm the property (Glover Lease 556). The property must be preserved in the
same state as it was in when the lessee received it. The court stated obiter in the De
Beers case (cited above) that necessary improvements could not be removed from
the property by the lessee, as this would damage the property (369).

distinction Necessary improvements are those improvements that are needed to preserve or
between protect the leased property. They should be distinguished from luxurious and useful
necessary, useful
and luxurious improvements. Luxurious improvements are those improvements that do not improve
improvements the usefulness of the property, but increase its market value. Useful improvements
do both. See your property law module in this regard.

LPL4801/1 47
 12.3.3.3 Annexures made with the lessor’s consent
must vacate before Article 10 provides that the lessor must compensate the lessee for annexures, but
claiming
compensation further provides that the lessee of rural land cannot remain in occupation until such
annexures have been paid for; the tenant may institute action for compensation
only after vacating the land. However, the compensation is minimal.

Article 11 provides as follows:

compensation for And in the assessment of the compensation, account shall be taken only of the bare
bare materials materials, without sand, lime and wages such as they shall be actually worth at the
time of the said assessment just as if they were removed from the ground: Thus the
said homesteads and lands shall be hypothecated for the satisfaction of the estimated
amount of the aforesaid materials and remain so, until the same be actually paid
[translated].

In other words, the lessee would get for the materials what a housebreaker would
get. It could be argued that such treatment of the lessee is against public policy.

12.3.4 Necessary improvements

The answer to the question whether the Placaten are applicable to necessary
improvements is uncertain. There is no court decision on the issue and academic
writers are divided on the question.

majority view: The majority of writers are of the opinion that the Placaten should apply to necessary
Placaten apply improvements because the Placaten do not distinguish between the different types of
improvements (De Wet and Van Wyk Kontraktereg 362; Bradfield and Lehman Lease
195; Cooper Landlord 334–335). This would mean that if the necessary improvements
were made with the consent of the lessor and the necessary improvements amount
to annexures, the lessee would receive only the cost of the raw material.

minority view: The minority view is that the Placaten should not apply because if we consider the
Placaten do not purpose for which the Placaten were passed and the fact that article 12 cannot apply to
apply
necessary improvements, it indicates that the legislation was not designed to remove
the common-law claims of lessees for the necessary improvements that they have
made (Glover Lease 558). The lessee would then be granted compensation based on
enrichment as a bona fide possessor.

mandate and Two other possibilities for compensation exist in order to curb this unfair state
negotiorum gestio of affairs. If the lessor instructed the lessee that he/she must effect necessary
improvements, the lessee will have a claim based on a contract of mandate. If the
lessee acted without the knowledge of the lessor, as negotiorum gestor, he/she could
claim compensation (De Beers 369). In this regard, refer to the law of unjustified
enrichment.

12.4 OTHER LEASES

As indicated above, the Placaten do not apply to urban leases and the common law
must still be applied. Here, again, the lessee has certain rights to remove his/her
property, but we will discuss this issue below in paragraph 12.5 below on the removal
of property generally.

48
 STUDY UNIT 12: Compensation for improvements

lessor must The lessee, who is a lawful occupier, is in the same position as a bona fide possessor
pay compensation (Business Aviation 608).
for necessary
and useful
improvements If the lessee does not remove his/her property, the lessor must pay compensation for
necessary and useful improvements, but not for luxurious improvements, unless the
property is resold immediately by the lessor at a higher price because of the luxurious
improvements (Glover Lease 562).

enrichment The scale of compensation is, of course, the measure by which the value of the
principles apply property is enhanced, unless the improvements actually cost less (expenses), in
which case the lessor must pay this lesser amount. In such a case, the consent of the
lessor to the improvements is not necessary for the recovery of compensation, for
the Placaten do not apply.

lessee may remain Moreover, the lessee may remain in occupation until he/she has been compensated. This
in occupation is in accordance with the normal enrichment principles that grant the impoverished
until compensated
person a right of retention.

Therefore, the lessee of urban property is in a much better position than a lessee of
rural property who even did obtain consent for improvements.

12.5 REMOVAL OF PROPERTY BY THE LESSEE

Naturally, the lessee may remove all his/her movable property from the premises,
unless it has been attached for rent under the lessor’s hypothec. Problems sometimes
arise when the annexures become immovable.

However, we must again distinguish between agricultural and other leases.

12.5.1 Agricultural leases

may remove all Here there is no difficulty; article 12 (as discussed in par 12.3.3.2 above) of the
annexures that Placaten explicitly gives the tenant the right to detach and remove all annexures,
were made without
whether or not they became immovable by annexure, if improvements were
consent
made without the lessor’s consent. If consent was obtained, there is no right to
remove the annexures by virtue of article 10 (discussed above). The tenant may
also remove all crops and trees before the expiration of the lease, even though he/
she can claim compensation if he/she leaves them. As indicated above, necessary
improvements cannot be removed before the expiration of the lease.

12.5.2 Other leases

In this case, the common law still applies. In Roman and Roman-Dutch law, the
rule was simple: quidquid inaedificatur solo, solo cedit (whatever is built on the soil is an
accessory to the soil).

In civil law, as in Roman-Dutch law, the accessory has the same character as the
thing to which it is acceded. In character, a house is an immovable, both because it is
built into the soil and because it is placed there presumably for a permanent purpose.

Therefore, permanent annexures made by the lessee become part of the property
and fall under the ownership of the lessor. Consequently, the lessee cannot remove

LPL4801/1 49
 the annexures, either during or after expiration of the lease and will have to base
his/her claim on the enrichment law.
But in the case of annexures other than buildings, some practical difficulty may be
experienced. You have covered this aspect of the law in depth in the law of property.

elements The question of whether an article, originally movable, has become immovable
determining through annexation by human agency is, in reality, often problematic. In this case,
permanency
the elements to be considered are:

• the nature of the particular article

• the degree and manner of its annexation
• the intention of the person annexing it
If a movable is annexed to an immovable with the intention that it should remain
there permanently, the movable itself becomes an immovable. Since the lessee’s title
is only of a temporary nature, the presumption is that where a lessee fixes a movable
to the property, he/she has no intention of fixing the movable permanently.
Yet, some intention that the thing should remain there permanently may be deduced
from certain circumstances. Bear in mind the presumption that the tenant had no
intention of fixing the thing permanently. Where the annexures cannot be removed,
the lessee will have a potential enrichment claim in the event of an urban lease.
Necessary improvements can also not be removed (Glover Lease 562).

ACTIVITY
1. Reread the factual scenario at the beginning of this study unit on page
45. Advise Michael on whether, and to what extent, he could claim for the
various improvements he has made.
2. Would Michael have been in a better position had the improvements been
effected on urban land?

11 FEEDBACK
(1) See paragraphs 12.1–12.3 and 12.5 above. The improvements were made
with the lessor’s consent. It is also rural land, meaning that the Placaten
are applicable. Therefore, Michael will be entitled to the cost of ploughing,
tilling, sowing and seed-corn in terms of article 10. However, he will not be
able to remain on the property until he is compensated. In terms of article
13, he will be able to claim for the price of the trees, as same was planted
with consent. With regard to the security fence and dam, he will be able to
claim for the value of the raw material as if these were removed on inspection.
There is uncertainty whether the Placaten apply to necessary improvements.
If they don’t, Michael will have an enrichment claim for fi xing the roof. If
they do, just the value of the raw material may be claimed, unless he can
prove that all the requirements for negotiorum gestio according to the law
of enrichment have been met. Michael may not remove the annexures.
(2) See 12.4–12.5 above. He will be regarded by the law as a bona fi de
possessor. He will be able to claim compensation for necessary and useful
improvements in terms of the principles of the law of enrichment. He may
remain in occupation until he has been compensated by the lessor. He may
not remove annexures that have become immovable by annexation. He
may not remove necessary improvements.

50
 13 STUDY UNIT 13
THE TENANT’S DUTIES

CONTENTS
13.1 THE TENANT MUST PAY THE RENT
13.2 THE TENANT MUST USE THE THING IN A PROPER MANNER
13.3 THE TENANT MUST RESTORE THE PROPERTY TO THE LESSOR
ON THE TERMINATION OF THE LEASE
13.4 THE TENANT MUST CARRY OUT ANY SPECIAL OBLIGATIONS
IMPOSED ON HIM/HER BY THE AGREEMENT OF LEASE
The first two duties will be discussed in study units 14 and 16. The duties under
13.3 and 13.4 need no further comment here. The landlord’s hypothec (for securing
payment of the rent) will be discussed in study unit 15.

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain that the lessee has an obligation to pay the rent

• explain that the lessee has an obligation to use the property in a proper manner

LPL4801/1 51
 14 STUDY UNIT 14
THE TENANT MUST PAY THE RENT

Jordan leases an apartment from Casandra for three years at R3 000 per month. After
eighteen months, Jordan falls into arrears with the rent by 2 months and decides to
vacate the apartment in an attempt to avoid paying the arrear rent.

CONTENTS
14.1 CERTAINTY
14.2 PLACE OF PAYMENT
14.3 TIME OF PAYMENT
14.4 THE CONSEQUENCES OF A FAILURE TO PAY THE RENT ON
TIME
14.5 PAYMENT OF RENT AFTER CANCELLATION
14.6 PRESUMPTION OF PAYMENT
14.7 FURTHER CONSEQUENCES OF FAILURE TO PAY THE RENT –
EVICTION PROCEDURE
14.7.1 Introduction
14.7.2 Eviction procedure
14.7.2.1 Occupation of less than six months
14.7.2.2 Occupation of more than six months

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the implications of certainty of rent

• explain the implications of place of payment
• explain the implications of time of payment
• explain the consequences of a failure to pay the rent on time
• discuss and explain whether rent should be paid after cancellation
• explain what is meant by the presumption of payment
• discuss and explain the eviction procedure in the event of non-payment of the rent
• apply the rules discussed here, as well as any relevant case law, to practical problems

14.1 CERTAINTY
void for vagueness One of the essential elements of a contract is the certainty or ascertainability of the
contents of the agreement. If the performance is vague or indefinite, the contract
is void for vagueness, since enforcement of an obligation, the rights and duties of
which cannot be determined, is impossible. Thus, contracts in which the contents
of the performance are left by parties to be negotiated at a later stage, or in which
one party is given the discretion to decide what is to be performed, are invalid.

52
 STUDY UNIT 14: The tenant must pay the rent

obtaining certainty Certainty or ascertainability of a performance can be attained in two ways: first, by
1– defining expressly defining the rights and obligations the parties wish to create, and secondly,
performance by the parties’ agreeing to identify an external standard by which the performance
2 – external
standard
should be determined (e.g. an escalation clause for the lease of a house can be coupled
with the inflation rate or the consumer price index).

Thus, the rent agreed upon must be certain. Rent is certain when the parties agree
upon a definite amount of money or upon a definite method whereby the rent can
be fixed. If the rent is indefinite, the whole contract is void for vagueness.

Genac Properties In Genac Properties JHB (Pty) Ltd v NBC Administrators CC (Pty) Ltd 1992 1 SA 566
(A), the court had to decide if the rental formula agreed to, could be ascertained
with reasonable certainty. As part of the rental to be paid, the lessee agreed to
pay a percentage towards the aggregate of all the landlord’s actual and reasonable
maintenance and running expenses. The court held that the reasonableness of the
expenses could be objectively determined. Therefore the rental could be ascertained
with reasonable certainty. Accordingly, the lease agreement was valid and enforceable.

14.2 PLACE OF PAYMENT

Venter v Venter Where must the lessee pay if the contract does not provide for a place of payment
of the rent? This question has been the subject of considerable controversy, but the
matter was resolved in Venter v Venter 1949 1 SA 768 (A). Here, the lease between
the two parties contained a forfeiture clause in the event of non-payment of rent
(which had to be paid on fixed dates). The lessee had sent the rent on the due date
to a certain bank and advised the lessor that he had done so. The bank inadvertently
credited the amount to another client with the same surname Venter, with the result
that when the lessor called, he was advised that no money had been deposited in his
account. The lessor then cancelled the lease. Later the mistake was discovered and
the bank tendered the money, but the lessor refused to accept it.

Now, if the creditor must seek out the debtor, then the lessor would have had to apply
to the lessee for payment, in which case the mistake would have been discovered
immediately. The question is: was it the lessor’s duty to ask the lessee for payment,
since there was originally no money deposited at the bank? The Appellate Division
was unanimous that where the contract fixes the date of payment, the debtor must
seek out the creditor to tender payment. The Appellate Division reasoned as follows:
where the time of payment is fixed, the debtor (lessee) must tender payment on that
date to avoid a breach of contract. It is his/her duty to tender payment; therefore
he/she must seek out the creditor (lessor):

Payment implies dare [having to do something] so that the money paid becomes
the property of the creditor. Where the lessee has assumed an obligation
sounding in dare, action on his or her part is implied, namely conduct which
would lead to the satisfaction and extinction of the debt.

date of payment Our law may, therefore, be stated to be as follows: where a date of payment
fi xed, debtor finds has been fixed, the debtor must seek out the creditor, unless usage indicates
creditor
otherwise.

LPL4801/1 53
 14.3 TIME OF PAYMENT
If the parties have agreed that the rent must be paid on a specific day and at a specific
place, there is, of course, no uncertainty about the time of payment. If a specific day
for payment has been stipulated, the lessee has until midnight on that day to pay.
This does not mean that the lessee must keep trying to pay until midnight. It has
been decided that if the lessee has tried unsuccessfully to pay during the afternoon,
he/she need not try to present payment during the evening as well, but if the lessor
cannot be found during the morning, the lessee is expected to try again later on in
the day. After that, mora creditoris will arise (Brown v Moosa 1917 WLD 22).

If payment on a specific day is excused, for example because it is a Sunday, the lessee
has until the next business day to pay. If the day of payment falls on a public holiday
and payment has to be made at a specific place of business, the position is the same.

If the day of payment falls on a public holiday and the rent does not have to be paid
at a business address, it will be decided in accordance with the intention of the parties
whether payment on the next day of business will still be in time (National Bank of
South Africa Ltd v Leon Levson Studios Ltd 1913 AD 213).

Glover (Lease 427) contends this this is specifically relevant to modern-day practice
where banks do not process electronic payments on Sundays or public holidays.

If it is the lessor’s fault that payment could not be made on the day specified, the
lessor, and not the lessee, will be in mora (mora creditoris).

If, according to the agreement, payment simply has to be made “in advance”, the
rent is payable on the first day of the period of the lease, without any demand for
payment having to be made on the lessee.

Where the contract stipulates no specific day of payment, the rent becomes due only
after the expiry of the lease. It is not certain whether it is necessary for the lessor to
place the lessee in mora after the lease has expired.

14.4 THE CONSEQUENCES OF A FAILURE TO PAY THE RENT ON

TIME
The lessee can commit breach of contract by defaulting on payment of the rent or
by repudiating liability (Goldberg v Buytendag Boerdery Beleggings (Edms) Bpk 1980 4 SA
775 (A)). The normal remedies for mora debitoris or repudiation will then be available.

upholding of the If the lessee does not pay the rent on time, the lessor may uphold the contract and
contract claim the rent that is overdue and damages in addition. The lessor may also, in certain
circumstances, rescind the contract.

cancellation of the If there is a term in the contract that the landlord may resile if the tenant fails to pay
contract
the rent, the lessor automatically has a right of rescission and there are no problems.

Is the landlord entitled to resile on the ground of the tenant’s failure to pay the rent
if there is no term in the contract covering this contingency?

According to our common law, a landlord could not resile before the rent had been
in arrears for a period of two years. However, in Goldberg, the Appellate Division

54
 STUDY UNIT 14: The tenant must pay the rent

decided that the two-year rule had become superfluous and that a lessor could acquire
a right to rescind by giving the lessee a notice of rescission.

waiver and Even if the lessor is entitled to rescind the contract on the ground of the lessee’s
cancellation failure to pay the rent, he/she forfeits this right if he/she waives it expressly or by
implication. Waiver can be seen as a renunciation of a right. No uncertainty can
arise where there is express waiver by the lessor. Once the intention to renounce
is expressly communicated to the other person involved, the right no longer exists
(Mutual Life Insurance Co of New York v Ingle 1910 TPD 540 550). Alternatively, the lessee
will have to prove that the lessor has waived his/her right to cancel by implication.

A very important legal question is whether the acceptance by the landlord of rent
can be used as an indicator that the lessor has waived his/her right to cancel. The
following should be kept in mind:

• Acceptance of rent that became due before the breach of contract does not
preclude the lessor from cancelling the lease agreement, unless the lessor knows
about the breach when receiving the rent and indicates that he/she would like to
continue with the lease.
• The position is unclear where rent that became due after breach, but before
cancellation, is accepted by the lessor. Some courts hold that the lessor could
accept the rent and nevertheless cancel, if he/she has made up his/her mind
that he/she would like to cancel and has disclosed his/her decision to the lessee
(Desai v Mahomed 1976 2 SA 709 (N); Whittaker v Kiessling 1979 2 SA 578 (SWA)).
However, in older cases, the courts accepted the English law in this respect, stating
that this would amount to a waiver by the lessor (Sher v Maynier 1918 WLD 29;
Watts v Goodman 1929 WLD 199). It seems that the Desai and Whittaker cases were
correctly decided, because the lessor is merely receiving what is due to him/her
(Glover Lease 438). Where the lessor has not yet made up his/her mind to cancel
the agreement, and continues to receive the rent, the lessor can be found to have
waived his/her right to cancel (Gore NO v Parvatas (Pty) Ltd 1992 3 SA 363 (C)).
• After cancellation, the ‘rent’ being paid to the lessor until he/she leaves the rented
premises will be regarded and treated as ‘damages’, and its acceptance will not be
seen to mean that the lessor has revoked his/her cancellation, unless a different
intention can be deduced.
estoppel In Myerson v Osmond Ltd 1950 1 SA 714 (A), the court decided that a landlord will be
estopped from cancelling for future late payments if he/she has repeatedly accepted
previous late payments (Glover Lease 443).

tacit hypothec It is important to take note that if a lessee fails to pay the rent, the lessor may use his/
her tacit hypothec to secure the rent. For a discussion of this topic, see study unit 15.

14.5 PAYMENT OF RENT AFTER CANCELLATION

can rent be Where the lessee cancels the contract unilaterally on the ground of the lessor’s
claimed between breach of contract, he/she remains liable for rent until he/she has vacated the
cancellation and
premises altogether, that is, until he/she has given the lessor the free and undisturbed
vacating the
property? possession thereof. Therefore, cancellation does not relieve the lessee of paying rent,
but vacating the property does. This was decided unequivocally in Sapro v Schlinkman
1948 2 SA 637 (A) 646. Although this case has been followed by other decisions,
it is open to criticism. Technically, it is not rent that the lessor is suing for, as the
lease has been terminated. It would be more correct to allow the lessor a claim for
contractual damages for holding over (Glover Lease 497–498).

LPL4801/1 55
 14.6 PRESUMPTION OF PAYMENT
Where the lessee produces receipts for three successive yearly payments, a rebuttable
presumption is raised that the lessee paid the preceding rentals.

14.7 FURTHER CONSEQUENCES OF FAILURE TO PAY THE RENT –

EVICTION PROCEDURE

14.7.1 Introduction
In the past, the South African courts have held that, in a claim for eviction, it was
sufficient to allege that the plaintiff was the owner of the property and that the
defendant was still in possession thereof.

It was unnecessary for the owner to allege that the defendant was in wrongful
or unlawful occupation because ownership alone entitled possession of property
(Cooper Landlord 372). The plaintiff had to establish his/her ownership by producing
a properly identified title deed in court or by means of an admission of plaintiff’s
ownership by the defendant; thereafter, the onus moved to the defendant to prove
his/her right to occupation of the property.

Section 26(3) of the Constitution of the Republic of South Africa, 1996 changed the
law substantially by stating that no one may be evicted from his/her home without
a court order, after the court has considered all the relevant circumstances. This
provision gave rise to the promulgation of the Prevention of Illegal Eviction from and
Unlawful Occupation of Land Act 19 of 1998 (“PIE”). PIE sets strict requirements
for the eviction of unlawful occupiers. Unlawful occupiers can be evicted only in
a fair manner, giving special consideration to the elderly, children, disabled and
households that are headed by women.

holding over The question arose in Ndlovu v Ngcobo; Bekker v Jika 2003 1 SA 113 (SCA) whether
PIE applied to persons who once had lawful possession, but whose possession
subsequently became unlawful for some reason. The tenant’s lease in the Ndlovu
case was terminated lawfully, but he refused to vacate the premises. In the Bekker
matter, a mortgage bond had been called up by the bank, the property was sold
in execution and transferred to the appellants, but the erstwhile owner refused to
vacate the property. In neither case did the applicants for eviction comply with the
procedural requirements of PIE.

In cases where defaulting tenants or mortgagors fail to vacate the property, they are
said to be “holding over ‘’. PIE applies to an “unlawful occupier”, which is defined
as someone who occupies land without the express or tacit consent of the owner or
person in charge, or without any other right in law to occupy such land (s 1). Thus the
question is whether the term “unlawful occupier” includes persons holding over. The
significance of this question is obvious: If PIE does not apply to cases of “holding
over”, then a landlord or bank can evict a defaulting tenant or mortgagee from an
urban residence simply by satisfying the common-law requirements. However, if
PIE is applicable to cases of “holding over”, then the procedural and substantial
requirements in terms of PIE should be adhered to. The court came to the
conclusion that PIE did apply to cases of “holding over” (125G–H). The court
further stated that PIE is applicable to urban and rural property that is used as a
shelter or dwelling, which means that it will not be applicable to commercial leases.
Therefore, juristic persons cannot be protected by PIE.

56
 STUDY UNIT 14: The tenant must pay the rent

14.7.2 Eviction procedure

PIE makes a distinction between unlawful occupiers who have occupied land for
less than six months and those who have occupied it for longer than six months.
In both cases, certain procedural requirements have to be met (s 4(6) & (7)).

14.7.2.1 Occupation of less than six months

If an unlawful occupier has occupied premises for less than six months at the time
when proceedings are initiated, a court may grant an order for eviction if it is of
the opinion that it is just and equitable to do so after considering all the relevant
circumstances (s 4(6)). Included in the relevant circumstances are the rights and
needs of the elderly, children, disabled persons and households headed by women.

14.7.2.2 Occupation of more than six months

If an unlawful occupier has occupied premises for more than six months, the eviction
procedure becomes more cumbersome. In this instance, a court may grant an order
for eviction if it is of the opinion that it is just and equitable to do so after considering
all the relevant circumstances (s 4(6)). Included in the relevant circumstances are the
rights and needs of the elderly, children, disabled persons and households headed by
women, as well as the fact that land has been made available or can reasonably be
made available by a municipality or other organ of state or another landowner (s 4(7)).

Before an eviction order can be made, the court must first consider all the relevant
circumstances. This principle is enshrined in the Constitution of the Republic of
“all the relevant South Africa, 1996, but also in PIE. It is clear from case law that the courts cannot
circumstances”
merely pay lip service to this requirement. “Have regard to” means that due weight
should be given to all the relevant circumstances. If there is not sufficient information
placed before the court, the court must ensure that it obtains the necessary
information, thus moving beyond the normal functions of a court (Port Elizabeth
Municipality v Various Occupiers 2005 1 SA 217 (CC)). It is a balancing act between
the interests of the unlawful occupier, on the one hand, and the owner’s right, on
the other hand, while also taking into account modern eviction law principles and
constitutional values. It would for instance as a general rule not be just and equitable
to grant an eviction order where this would leave the occupier homeless (Occupiers,
Shulana Court, 11 Hendon Road, Johannesburg v Steele [2010] 4 All SA 54 (SCA) [16]).

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 52 and
advise Casandra accordingly.

12 FEEDBACK
Refer to paragraph 14.4. Jordan has breached the contract, as he failed to pay
the rent in time. Now discuss the remedies (cancellation, damages, specifi c
performance, tacit hypothec (see study unit 15). Eviction is not relevant here, as
Jordan is already vacating the premises.

LPL4801/1 57
 15 STUDY UNIT 15
THE LESSOR’S TACIT HYPOTHEC TO
SECURE THE RENT

Peter rents a flat in Sea Point from John. Peter is very creative and has decorated
the flat with some of the most expensive furniture available in the Cape. Half of
the furniture was paid for by Peter in cash, but the rest has been bought in terms of
instalment agreements with a furniture boutique. Peter is also looking after a painting
for his sister, who is overseas for two months. Peter is retrenched and cannot find
alternative employment. As a result, he fails to pay the rent for four months.

CONTENTS
15.1 NATURE OF THE LESSOR’S HYPOTHEC
15.2 WHAT GOODS ARE SUBJECT TO THE HYPOTHEC?
15.2.1 Nature of goods
15.2.1.1 Goods exempt from ordinary attachment
15.2.1.2 Money
15.2.1.3 Other security
15.2.2 Whose goods are subject to the hypothec?
15.2.2.1 Tenant
15.2.2.2 Subtenant
15.2.2.3 Third persons
15.3 WHAT DEBTS ARE SECURED BY THE HYPOTHEC?
15.4 LEGAL EFFECT OF HYPOTHEC
15.4.1 Preference on insolvency
15.5 QUICK PURSUIT
15.6 EFFECT OF TERMINATION OF LEASE

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the nature of the lessor’s hypothec

• explain what goods are subject to the hypothec
• explain whose goods are subject to the hypothec
• explain what debts are secured by the hypothec
• explain the legal effect of the hypothec
• explain how the doctrine of quick pursuit operates

In this study unit, we discuss the fact that the landlord has a valuable form of security
for the rent in a tacit hypothec.

58
 STUDY UNIT 15: The lessor’s tacit hypothec to secure the rent

15.1 NATURE OF THE LESSOR’S HYPOTHEC

hypothec not a lien In the first place, we must point out that the landlord’s hypothec is not a lien,
although it is sometimes loosely and wrongly called a lien. A lien’s validity depends
on possession of the goods (subject to the lien) by the creditor, while in the case of
the lessor’s hypothec, the goods must be on the leased premises; consequently, such
goods are in the possession of the debtor (lessee).

The landlord’s hypothec is one of the two remaining tacit hypothecs in South
African law. (The other is the tacit hypothec of the instalment sale, seller and the
credit grantor.) The landlord’s hypothec originated in the Dutch pandingsrecht and
the Roman tacit hypothec for rent.

as soon as rent As soon as the rent is in arrears, the lessor acquires a personal right to juridically
is in arrears, the attach all the invecta et illata (all movable property which is driven or carried onto the
lessor acquires
a personal right;
leased premises, whether the premises be urban or rural) on the premises. This right
personal right= exists without the parties having to agree to it. It is therefore one of the naturalia of
naturale the contract.

What is more, the lessor’s hypothec is recognised in the 2014 Amendment Act of the
RHA (s 4A(6)(b)) in so far as residential leases are concerned. Although section 51(1)(i)
(i) of the CPA (discussed in Study Guide 3, study unit 22 par 22.4) prohibits a clause
authorising a supplier to enter any premises for the purposes of “taking possession
of goods to which the agreement relates”, it will be inappropriate to construe this
section to restrict the landlord’s hypothec (Glover Lease 453). Also refer to study
unit 3, paragraph 3.2 of this study guide.

Although the right to attach such property is merely a personal right – so that the
lessor cannot pursue it in the hands of innocent third parties, even when it has
merely been removed from the premises – the hypothec automatically confers a
preference in the event of the sequestration of the lessee’s estate. The hypothec is
converted into a real right in the property only after the property has been attached
(more about this later).

15.2 WHAT GOODS ARE SUBJECT TO THE HYPOTHEC?

We have seen above that the lessor’s security is a tacit hypothec, and that the goods
must be on the premises. But are all goods on the premises subject to the hypothec?
In order to answer this important question, we must distinguish between the nature
of the goods and to whom the goods belong.

15.2.1 Nature of goods

all invecta et illata All invecta et illata (literally: “things driven or carried onto the property”) on rural
and fruits on rural and urban property, as well as all the fruits of any property whatsoever, whether
and urban property such fruits be separated or not, are subject to the hypothec. All movables brought
are subject to
onto the property (see qualification as to permanency below) will be subject to the
hypothec
security by the lessor. Three points, however, deserve special mention.

15.2.1.1 Goods exempt from ordinary attachment

goods exempted It would seem that goods exempted from attachment by a statute would not be
from attachment subject to the hypothec (e.g. bedding and wearing apparel (clothing). However, in

LPL4801/1 59
 Harris v Tomlinson 1912 CPD 821, it was held that such statutory protection merely
limited the extent to which execution on a judgment may proceed, and that it did not
affect the common-law rights of the lessor. Therefore, while a reasonable amount
of bedding and wearing apparel are exempt from attachment by writ, they still fall
under the lessor’s hypothec. In effect, this means the same thing: Although the
lessor obtains a hypothec over these goods, he/she will not be able to enforce his/
her hypothec over this reasonable amount of bedding and wearing apparel.

goods under In terms of section 2(1) of the Security by Means of Movable Property Act 57 of 1993,
notarial bonds movable goods subject to a special notarial bond and in the possession of someone
and instalment
agreements other than the mortgagee or to goods which an instalment agreement in terms of
the National Credit Act 34 of 2005 relates, are not subject to the lessor’s tacit
hypothec. (Instalment agreements in terms of the NCA are discussed in Study Guide
3, study unit 4). However, if the tacit hypothec was perfected by attachment before
the special notarial bond had been registered, the landlord will enjoy preference and
protection (Van Schalkwyk & Van der Spuy Things 385).

15.2.1.2 Money
Money present on the property is subject to the hypothec of the lessor. The proceeds
from the sale of invecta et illata that have been deposited in the lessee’s bank account
are not, however, subject to the hypothec.

15.2.1.3 Other security

As a point of interest you may note that the lessor may have other security apart
from the hypothec. Thus, the Land Bank Act 13 of 1944 provides that the lessor’s
hypothec does not apply to sheep bought with an advance made by the Land Bank
in terms of a farmer’s assistance scheme. For example, A borrows money from the
Land Bank, buys sheep, leases a farm from B to graze the sheep, fails to pay the
rent, and agrees to cancellation of the lease. On cancellation of the lease, B obtains
possession of the farm and sheep and thus has an agistor’s lien (a lien held by a person
over animals for grazing fees). The mere exclusion (by statute) of the hypothec in
respect of such sheep does not deprive the lessor of his or her agistor’s lien.

15.2.2 Whose goods are subject to the hypothec?

15.2.2.1 Tenant

all goods All the goods of the tenant are subject to the hypothec, even if the lessor doesn’t
know of its existence (Glover Lease 455).

15.2.2.2 Subtenant
all goods to the All the subtenant’s goods on the property are subject to the hypothec, but only to
rental amount
owed the amount of rent still owed by him/her to the lessee.

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 STUDY UNIT 15: The lessor’s tacit hypothec to secure the rent

15.2.2.3 Third persons

requirements set The Appellate Division held in Bloemfontein Municipality v Jackson’s Ltd 1929 AD 266:
in Bloemfontein
Municipality
When goods belonging to a third person are brought onto the leased premises
with the knowledge and consent, express or implied of the owner of the goods,
and with the intention that they shall remain there indefinitely for the use of
the tenant, and the owner, being in a position to give notice of his ownership
to the landlord, fails to do so, and the landlord is unaware that the goods do
not belong to the tenant, the owner will thereby be taken to have consented
to the goods being subject to the landlord’s tacit hypothec, and be liable to
attachment.

It would thus appear that there are four factors to be taken into account when
considering whether the goods of a third person are subject to the hypothec of the
lessor. These are the following:

4 factors must be (1) Provided that the lessor is aware that the goods on the property belong to a
taken into account third person, those goods are not subject to his/her hypothec.
(2) If the third person is aware that the goods are being held on the leased property
and he/she has given his/her permission that they may remain there in the
possession of the lessee, those goods will be subject to the lessor’s hypothec. The
reason for this is that the third person creates the impression (“appearance”)
that another (the lessee) is the owner of these goods. If the third person
wishes to prevent the lessor from being misled by the impression created, he/
she must ensure that the lessor receives notice that the goods do not belong
to the lessee. Should he/she fail to do this, he/she will have to accept the fact
that his/her goods are subject to the tacit hypothec of the lessor.
(3) If the goods of the third person are not merely temporarily on the leased
property, but are brought there for the indefinite use of the lessee, they will
be subject to the lessor’s hypothec (provided, of course, that all the other
factors are present).
(4) The goods of a third person will be subject to the hypothec of the lessor, only
if they are brought onto the leased property for the use of the lessee.
Although the position is still far from clear, it would appear that the court will
insist on these four factors being present in considering whether or not the
goods of a third person are subject to the hypothec of the lessor.

The court has decided in Eight Kaya Sands v Valley Irrigation Equipment 2003 2 SA 495
(T) that the attachability of a third party’s goods based on the above grounds, should
actually be brought home under a misrepresentation (“creation of an appearance”)
made by the third party. Modern writers are in agreement regarding this (Van
Schalkwyk & Van der Spuy Things 382).

It should, however, be noted that the goods of third persons will be subject to the
hypothec only in so far as the goods of the lessee and sub-lessee are insufficient to
meet the rent owing to the lessor.

15.3 WHAT DEBTS ARE SECURED BY THE HYPOTHEC?

only rent secured The lessor’s hypothec secures the rent only. In other words, the lessor cannot rely
by hypothec on his/her hypothec for payment of a debt other than rent.

LPL4801/1 61
 15.4 LEGAL EFFECT OF HYPOTHEC
the importance of In general, in the absence of an attachment of the goods, the landlord’s hypothec
attachment order is of little practical value. It does not automatically grant the lessor a real right to
the goods. Thus he/she cannot pursue the goods if they are removed from the
premises, nor can he/she remove the goods or realise them himself/herself. This
state of affairs, however, can be remedied by perfecting the lessor’s hypothec, upon
which the lessor will obtain a real right. Perfecting occurs only after obtaining
an attachment order, followed by the actual judicial attachment by the sheriff
(Van Schalkwyk & Van der Spuy Things 381, Eight Kaya Sands).

interdict does not The obtainment of an interdict restraining the lessee from removing the goods from
perfect the tacit the premises, therefore offers limited protection to the lessor as it does not offer any
hypothec
greater rights over creditors; it merely poses a threat of criminal proceedings to the
lessee and others knowing about the interdict, should they remove the goods from
the premises. If the amount of the rent in arrears does not exceed the jurisdiction
of the magistrates’ court, the matter is very simple because section 31(1) of the
Magistrates’ Courts Act of 1944 provides for an automatic rent interdict. In other
words, a notice is inserted in the summons, prohibiting any person – under severe
pain and penalties – from removing the goods (subject to the hypothec) from the
premises, pending decision of the action. The effectiveness of this automatic interdict
lies in the fact that the interdict is granted upon issuing of the summons. The lessor
does not have to wait for the decision of the court before the interdict is granted
(Glover Lease 465).

Moreover, the hypothec automatically confers a valuable preferential right against

the lessee’s insolvent estate.

15.4.1 Preference on insolvency

Section 85(1) of the Insolvency Act 24 of 1936 states the following:

…a landlord’s legal hypothec shall confer a preference with regard to any article
subject to that hypothec for any rent calculated in respect of any period immediately
prior to and up to the date of sequestration but not exceeding:

(a) three months, if the rent is payable monthly or at shorter intervals than
one month;
(b) six months, if the rent is payable at intervals exceeding one month but
not exceeding three months;
(c) nine months, if the rent is payable at intervals exceeding three months
but not exceeding six months;
(d) fifteen months in any other case.
No attachment to perfect the tacit hypothec is necessary in this case to confer the
landlord’s preference in terms of section 85(1). (Van Schalkwyk & Van der Spuy
Things 384).

15.5 QUICK PURSUIT

once goods are Once the goods have been removed from the premises, the lessor loses his/her
removed from hypothec, and an attachment may no longer be made. The lessor may not forcibly
premises, lessor
loses hypothec
restrain the lessee from removing the goods to defeat the hypothec before an
attachment can be obtained.

62
 STUDY UNIT 15: The lessor’s tacit hypothec to secure the rent

quick pursuit = The lessor is therefore in the unenviable position of losing his/her hypothec. Hence
lessor may apply the law allows the lessor to carry out a “quick pursuit”, that is, the lessor may apply
for attachment
order while goods
to the court for an attachment order while the goods are in the process of being
are in the process removed or are in transit.
of being removed

The doctrine of quick pursuit, as enunciated by the old authorities, has been adopted
by our courts. But there has been only one instance where our courts have had the
opportunity to apply the rule affirmatively. In Ex parte Coull 1930 SR 124, the court
granted an attachment order. In Webster v Ellison 1911 AD 73, the Appellate Division,
while recognising the principle of quick pursuit, refused an attachment order, since
the removal of the goods had been completed at the time the court was approached,
though within a short time after completion of the removal. This case does, however,
contain a number of very important dicta on quick pursuit. These dicta show that
our courts will grant an attachment order when they are approached before the
goods have reached their destination. Those goods that have not yet reached their
destination at the time the attachment is requested may then be taken back to the
leased premises, whereupon the hypothec is revived.

15.6 EFFECT OF TERMINATION OF LEASE

termination does It must be noted that the termination of the lease does not terminate the hypothec.
not discharge In Spayile v Bouwer 1911 CPD 65, the court held that cattle belonging to the previous
hypothec lessee, who remained on the farm, were still subject to the landlord’s hypothec for
rent owed by the previous lessee.

ACTIVITY

Reread the factual scenario at the beginning of this study unit on page 58. Advise
John in the following instances:

1. Can John, who hears of Peter’s predicament, rush over to the flat and remove
some furniture in lieu of arrear rent? Substantiate your answer.
2. Peter decides to leave Cape Town to make a new start in Johannesburg.
The furniture removal van is on its way to Johannesburg when someone
notifies John that Peter is in the process of moving. Would John be able
to stop the van and remove some of the furniture in lieu of the arrear rent?
You may assume for purposes of this question that John did not know that
some of the goods were bought on credit. Substantiate your answer.

13 FEEDBACK

(1) See 15.1 -15.5 above. John will first have to obtain an attachment order from
a court and thereafter has to perfect his tacit hypothec by attachment by the
sheriff of the invecta et illata. The hypothec, without an attachment order, is
merely a personal right, unless the lessee is sequestrated. Also consider to
which of the furniture the lessor’s hypothec will apply and to which it will not
apply. Also consider whether the painting would be subject to the hypothec.

LPL4801/1 63
 (2) See 15.1–15.5 above. Discuss the doctrine of quick pursuit. Also determine
which goods are subject to the hypothec and which are not. Give reasons
for your answer. Remember to deal with the furniture that has been paid for
in cash, which is subject to an instalment agreement, and Peter’s sister’s
painting.

64
 16 STUDY UNIT 16
THE TENANT MUST TAKE PROPER CARE
OF THE PROPERTY AND NOT USE IT
FOR A PURPOSE OTHER THAN THAT
FOR WHICH IT WAS LET

Mary, a city socialite, is the owner of a spectacular property that is renowned for its
landscaped garden, which includes vast expanses of rolling lawns, man-made lakes
and groves of trees. She decides to let this property for a period of two years while
she embarks on a world tour. A contract of lease is concluded with Jane, a wealthy
soccer patron. Immediately after conclusion of the contract and her occupation of
the property, Jane begins converting the gardens into soccer fields with the aim
of hosting an international soccer competition there. While watching television,
Mary comes to hear about the soccer competition and sees the radical changes that
are in the process of being effected to her property .

CONTENTS
16.1 INTRODUCTION
16.2 ORDINARY USE
16.3 TREES
16.4 THE LESSOR’S REMEDIES
16.5 ABANDONMENT OF PROPERTY
16.6 PRESUMPTION AS TO CAUSE OF DAMAGE
16.7 THE TENANT MUST VACATE THE PROPERTY AND RETURN IT
UPON CONCLUSION OF THE LEASE

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain that the lessee has an obligation to use the leased property for the purpose
for which it was let
• explain the rules that apply to the planting of trees
• explain the lessor’s remedies in the event that the lessee misuses the property
• explain the lessee’s obligation to vacate the property and return it upon termination
of the lease

16.1 INTRODUCTION
exercise care of We do not regard it as necessary to discuss this duty of the tenant in detail. Consult
bonus paterfamilias Glover (Lease 467), should you require further information. Firstly, the lessee must take
proper care of the property. He/she must use the leased thing as a bonus paterfamilias
(reasonable person) would in the case of his/her own property. Glover (Lease 468)
mentions a few examples: A lessee would be expected to maintain the garden, clean

LPL4801/1 65
 the swimming pool and keep the property clean. The lessee would also be expected to
effect minor running repairs caused by the lessee’s use and enjoyment of the property.

Secondly, the lessee must not use the property in any other way than that for which
it was let to him/her. For example, a tenant may not convert a shop into a bar or a
dwelling house, nor convert a parking arcade into a building materials storage site.
His/her use of the property may also not interfere with right of use and enjoyment
of other lessees, for example using a communal bathroom as a laundry and littering
in communal areas (Burns v D and G (Pty) Ltd 1949 4 SA 135 (T)). However, this
obligation should not be interpreted too strictly: The lessee should still have commodus
usus of the property (see study unit 7). Moreover, the lessee merely has the use of the
property and cannot appropriate part of the property.

16.2 ORDINARY USE

Where the agreement gives no indication of the purpose for which the property must
be used, the lessee must use it for the purpose for which such property is ordinarily
used, provided that the lessee does not do anything that may decrease the value of
the property. Therefore, in the case of Houghton Estate Co v McHattie and Barrat (1894)
1 OR 92, where the agreement gave no indication about how virgin soil was to be
used, the court held that the lessee was entitled to plant blue gum trees, as this could
only enhance the value of the property. The court decided that unless the lessor could
prove that the removal of the trees would damage the property, he had to allow the
lessee to cultivate the trees.

An interesting case where the court had to decide upon the purpose of certain
premises is the case of Woolworths (Pty) Ltd v Electricity Supply Commission Pension and
Provident Fund 1987 2 SA 67 (C). Woolworths concluded a long-term lease agreement
in respect of premises in order to run a Woolworths store. The question was whether
the latter party could commence a new line of merchandise (in this instance, selling
wine) without the lessor’s consent. The court ruled that the nature of Woolworths’s
business was innovative and dynamic, and that the introduction of a new line of
merchandise would accord with the purpose for which the premises were rented.
Woolworths therefore did not breach this duty.

16.3 TREES
The question of trees deserves a brief but special mention. As we have seen above,
the lessee may plant trees unless the nature of the property forbids it (e.g. a tenant
may not plant mimosa trees on arable land). The lessee may also be liable to maintain
trees, where he/she has undertaken to do so. However, it is the cutting of trees that
is the most important issue.

In dealing with the rights of the lessee (the same as those of a usufructuary) in this
respect, we must make the following distinctions:

(1) Silva caedua. A lessee may cut down silva caedua (trees that grow again after
being cut down, for example gum trees) and sell the wood for his/her own
benefit. In such a case, the lessee does not appropriate a portion of the property,
for such trees reproduce from time to time. The lessee may, therefore, cut
such trees to sell them, to use for building repairs, etc., as long as he/she does
not thereby cause the substance of the property to deteriorate. However, he/

66
 STUDY UNIT 16: THE TENANT MUST TAKE PROPER CARE OF THE PROPERTY

she may not cut down silva caedua where such trees have been planted for
ornamental purposes.
(2) Fruit trees. These, of course, may not be cut down.
(3) Other trees. Other trees may be cut down only for domestic and agricultural
purposes. However, such trees may not be cut down where they were planted
for special purposes, for example for shade or ornamental purposes.
Glover (Lease 471) states that the common law has been amended to a certain extent
by the National Environmental Management: Biodiversity Act 10 of 2004, which
specifies which of the trees may be cultivated, grown or cut down.

16.4 THE LESSOR’S REMEDIES

Where the tenant misuses the property, the lessor may

(1) claim damages

(2) obtain an interdict restraining the lessee from misusing the property
(3) cancel the contract where the misuse is of a serious nature

16.5 ABANDONMENT OF PROPERTY

sue for rent or Where the lessee abandons the property, the lessor may abide by the contract, and
cancel and claim sue for the rent when due, or he/she may accept the lessee’s repudiation of the lease
damages
and sue for damages for breach of contract.

Please also see study unit 19, paragraph 19.4.2.4 for the effect of vacation without
notice in cases where the RHA applies. The lease agreement is deemed to have
expired on the date that the lessor established that the tenant vacated the premises.

16.6 PRESUMPTION AS TO CAUSE OF DAMAGE

presumption that In the case of damage to leased property, a rebuttable presumption arises that the
lessee caused damage was caused by the lessee. In other words, the lessee must prove that the
damage
damage was not caused by him/her or by those for whose acts he/she is responsible.

16.7 THE TENANT MUST VACATE THE PROPERTY AND RETURN IT

UPON CONCLUSION OF THE LEASE
failure to return Should the tenant fail to vacate the property and return it upon the conclusion of
constitutes breach the lease, he/she commits a breach of contract. The property is to be returned in
the same condition as that in which he/she received it, except for normal wear and
tear. If the tenant returns the property in a worse condition, the lessor can demand
specific performance. If he/she does not return the property at all, he/she is guilty of
“holding over” and the lessor will be able to evict him/her only after the requirements
of PIE have been fulfilled. See paragraph 14.7 above. The lessor will, of course, also
have a claim for damages.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 65 and
advise Mary accordingly.

LPL4801/1 67
 14 FEEDBACK
Jane is breaching the contract because she fails to use the property for the
purposes for which it was let, which – in this case – will be its ordinary use.
Discuss this duty and then discuss the remedies for the breach of contract. Refer
to 16.1 – 16.4, & 16.7 above.

68
 17 STUDY UNIT 17
SUBLETTING, CESSION, DELEGATION
AND ASSIGNATION

Fikile rents a seafront flat in Cape Town from Zack. While he is working in England
for a year, he sublets the flat to Zarah. Is he allowed to do this?

CONTENTS
17.1 SUBLETTING
17.1.1 What is meant by “subletting”?
17.1.2 May the lessee sublet?
17.1.2.1 Subletting of rural premises
17.1.2.2 Subletting of urban premises
17.2 CESSION OF THE RIGHTS UNDER A LEASE
17.2.1 When may cession take place?
17.2.2 Consequences of cession
17.2.3 Difference between cession and sublease
17.3 DELEGATION
17.4 ASSIGNMENT

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain what is meant by “subletting”

• explain whether rural and urban premises may be sublet without consent of the
lessor
• explain what cession means
• explain what delegation and assignment entail

17.1 SUBLETTING

17.1.1 What is meant by “subletting”?

Where the tenant lets the leased property to another, the phenomenon is known as
subletting. Subletting is nothing but an ordinary contract of lease. The fact that in a
sublease, the lessor is incidentally also the lessee of the property does not influence
the contractual rights and obligations of the parties involved – they are exactly the
same as those arising from an ordinary contract of lease.

sub-lessee It is obvious that the sub-lessee derives his/her title from the sub-lessor. The sub-
derives title from lessee therefore has no claim to the leased property against the original lessor when
sub-lessor the original lease is terminated, and there is no contractual relationship whatsoever
between the original lessor (owner) and the sub-lessee. See discussion of Glatthaar
in paragraph 9.1 above.

LPL4801/1 69
 17.1.2 May the lessee sublet?
The main question with regard to subletting is whether the lessee is entitled to sublet
the property. Does the original lessee not perhaps commit breach of contract towards
his/her landlord if he/she sublets the property?

if there is a If there is a clause in the contract that the lessee may not sublet, a lessee who disregards
clause in contract
this will, of course, be committing breach of contract if he/she sublets the property.
denying lessee
right to sublet and
he/she ignores it = However, breach of contract will arise only if he/she sublets, and not if he/she merely
breach of contract allows another to have the use and enjoyment of the thing (Estate Ishmail v Sayed
1965 1 SA 393 (C)). So, if the lessor does not want anyone other than the lessee to
stay on the premises, he/she needs to include this specifically in the lease agreement.

If the contract stipulates that the lessee may not cede, transfer or assign any of his/
her rights or interests in terms of the lease agreement, does this include subletting?
In Floral Displays (Pty) Ltd v Bassa Land and Estate Co (Pty) Ltd 1965 4 SA 99 (D),
the court answered this question in the negative, saying that a sublease is different
from cession, assignation and transfer of rights. The distinction between these legal
phenomena is explained in 17.2 –17.4 below.

Whether the original lessor can cancel the contract on the ground of such breach of
contract will depend on the usual principles governing cancellation.

Undoubtedly, the Roman law of sublease was received in the Netherlands, namely
that a lessee of urban and rural premises could sublet without the consent of the
landlord. But this right must have subsequently been abused, for we find a substantial
body of Dutch legislation forbidding a sublease of rural and urban premises without
the consent of the landlord.

The local Dutch ordinances forbidding a sublease of urban premises are not in force
in South Africa; therefore we will firstly deal with a sublease of rural premises.

17.1.2.1 Subletting of rural premises

There is a strange conflict of authority in Roman-Dutch law concerning the question
of whether or not a lessee of rural premises may sublet without the lessor’s consent.
The matter depends on three Placaten: a placaat of Charles V, dated 1515, the Political
Ordinance of 1580 and a placaat of the States of Holland, dated 1658.

The first placaat stated that “no tenant shall be allowed to transfer any lease after
the expiration of the same, unless with consent.” This placaat prohibited cession of
a lease after the expiration thereof, but nowhere did it prohibit the cession of an
original lease.

The Political Ordinance of 1580 merely re-enacted the placaat of 1515.

In 1658, the placaat of the States of Holland was enacted. Article 9 read: “nor shall
any occupiers or tenants, either pending and during the lease, or after the expiration
thereof, make over directly or indirectly zoodanige hyre of land by sale, exchange,
donation or other contracts, without previous written consent of the owner.”

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 STUDY UNIT 17: Subletting, cession, delegation and assignation

The meaning of these Placaten have been debated by Roman-Dutch writers, some
saying that subletting without consent was prohibited, and others saying that the
Placaten do not apply to subletting, but rather to cession.

SA law = lessee The Placaten of 1515, 1580 and 1658 remain in force in the Republic of South Africa,
of rural property
except as regards the penal provisions of the ninth article. In De Vries v Alexander 1880
cannot sublet
without consent Foord 43, it was held that in terms of the placaat of 1658, a lessee of rural property
cannot sublet without consent. This case was followed by the Orange Free State
court in Visser v London and Jagersfontein Diamond Mining Co 1 CLJ 341 .

However, in Eckhard v Nolte 2 SAR 48, the Transvaal court held that the relevant
Placaten were not in force in South Africa and that a rural lessee could therefore
sublet. But this view was overruled by the appeal court in Spies v Lombard 1950 3
SA 469 (A), which means that the lessee of rural land may not sublet without the
landlord’s consent.

academic opinion The decisions above are open to criticism: The placaat of 1658 is undoubtedly part
= lessee of rural of our law, but article 9 does not apply to subletting. Therefore, it can be submitted
property is free to
sublet
that the Spies case was incorrectly decided, even though it is now an entrenched
principle in our law. Hence, the lessee of rural land may sublet only with the written
permission of the lessor.

17.1.2.2 Subletting of urban premises

may sublet urban Certain local Dutch ordinances did forbid the subletting of urban property, but
premises these ordinances were local and are not in force in the Republic of South Africa.
Consequently, the rule of Roman law is still in force in South Africa and an urban
lessee may sublet without consent. This has been established by a long line of cases
in South Africa. It must be noted, however, that the lessee must exercise this power
to sublet judiciously. Voet says that the lessee may not sublet where the sublessee “is
such a person that his using it would be… more prejudicial to the thing hired than
their use by the lessee”. The lessee may, however, even sublet to another where the
landlord himself/herself desires to obtain the tenancy.

17.2 CESSION OF THE RIGHTS UNDER A LEASE

17.2.1 When may cession take place?

cession of lease In cases of urban land, the lessee may (unless prohibited by an express clause in
of rural premises the lease agreement) transfer his/her rights in terms of the lease to a third party
only with written
without the cooperation of the lessor. The lessee of rural land, however, would need
consent of lessor
the consent of the lessor in terms of article 9 of the abovementioned placaat of 26
September 1658.

17.2.2 Consequences of cession

cessionary The rules and consequences of the cession are the usual rules and consequences. In
becomes lessor’s particular, cession does not affect the position of the lessee as debtor in terms of the
creditor
lease. The effect of a cession by a lessee is that the cessionary becomes the lessor’s
creditor, but the lessee remains the lessor’s debtor.

LPL4801/1 71
 17.2.3 Difference between cession and sublease
cession transfers Cession must be clearly distinguished from a sublease. The lessee transfers his/ her
rights, sublease contractual claim to possession to the cessionary through cession. The cessionary
creates new rights
and obligations becomes entitled to possession, although the original lessee remains liable for the rent;
only the lessee’s rights have been transferred, not his/her obligations. As a result of
the cession, there is a direct legal tie between the cessionary and the lessor.

In the case of sublease, there is no legal tie between the sub-lessee and the lessor; the
legal tie is only between the lessee and sub-lessee: the lessee lets the thing to the sub-
lessee, so that the lessee becomes lessor in relation to the sub-lessee. This distinction
is well stated by Miller J in the Floral Displays case (discussed above): as follows:

Whatever rights the sub-lessee may acquire he acquires from the lessee by virtue
of the agreement of lease concluded by them; his rights do not derive from
the lessor. But, when the lessee cedes or transfers his rights under the
lease to a third party, he divests himself of such rights by a dispositive
act which can in no sense be said to be the same as the act by which
he sub-lets the premises. It may be that the practical result in both cases
is similar, in the sense that the third party, whether he be a sub-lessee of the
premises or cessionary of the lessee’s rights, may enjoy occupation of the
premises which the lessor had let to the lessee. But it does not follow from
that, that a stipulation that the lessee shall not cede or transfer his rights under
the lease also restrains him from entering into an agreement of sub-lease in
respect of the leased premises. [Our emphasis]

17.3 DELEGATION
Delegation occurs where the lessee is replaced by another as debtor, and it takes
place by means of a novation agreement entered into by all three persons concerned.
Delegation always necessitates the consent of the lessor (Glover Lease 542).

17.4 ASSIGNMENT
transfer of both The term “assignment” is derived from English law and refers to the case where
rights and the lessee – in his/her capacity as both creditor and debtor – is replaced by another
obligations person. Therefore, both rights and obligations are transferred from the lessee to a
third party. The lessee effects the transfer of his/her rights by means of a cession
thereof to the other person, and the transfer of his/her obligations is naturally a
delegation governed by the normal principles of delegation. The effect of assignation
is that the lessee is replaced by someone else.

The invariable rule on assignment is that a lessee cannot assign something without
the consent of the lessor. Although cession can, take place without the consent of
the lessor in the case of urban land, delegation always requires the lessor’s consent
(Glover Lease 540).

ACTIVITY
1. Distinguish between cession and subletting.
2. How would you define “delegation”?
3. How would you define “assignment”?

72
 STUDY UNIT 17: Subletting, cession, delegation and assignation

4. Reread the factual scenario at the beginning of this study unit on page 69
and advise Fikile accordingly.

15 FEEDBACK
(1) See 17.1.1 and 17.2 (in particular 17.2.3).
(2) See 17.3.
(3) See 17.4.
(4) Since this is an urban lease, Fikile can sublet, unless expressly prohibited
in his lease agreement with Zack. Refer to 17.1.2.2.

LPL4801/1 73
 18 STUDY UNIT 18
THE TERMINATION OF A LEASE

Harry has concluded a six-year lease with Insika for his house in Pretoria. Harry is
declared bankrupt. What is Insika’s position regarding his rights as lessee?

CONTENTS
18.1 MUTUAL AGREEMENT
18.2 EFFLUXION OF TIME
18.3 NOTICE
18.4 CONFUSIO/MERGER
18.5 DESTRUCTION OF THE PROPERTY
18.6 RESCISSION FOLLOWING BREACH OF CONTRACT
18.7 EXTINCTION OF LANDLORD’S TITLE
18.8 INSOLVENCY
18.8.1 Landlord
18.8.2 Lessee
18.9 DEATH
18.9.1 Definite period
18.9.2 Lease for an indefinite period
18.9.3 Leases at will
18.9.4 Express provision
18.10 LEGISLATION

LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain how a contract of lease can be terminated by mutual agreement; effluxion

of time; notice; merger; destruction of the property; rescission of the contract;
extinction of landlord’s title; insolvency; death and legislation.

This matter (termination of a lease) requires only brief consideration. Most of the
causes of termination are, of course, matters relating to the general principles of
contract and, therefore, do not merit treatment here.

18.1 MUTUAL AGREEMENT

As in the case of any other contract, a contract of lease may be terminated by mutual
agreement. The agreement may be concluded orally, even in the case where the
contract of lease was required to be reduced to writing. Unless otherwise agreed
upon, such agreement has no effect on existing obligations. The lessor will thus be
entitled to payment of rent in arrears.

74
 STUDY UNIT 18: The termination of a lease

18.2 EFFLUXION OF TIME

common law In terms of the common law, a lease is terminated automatically by effluxion of time
where the lease is for a definite period, for example until the death of the lessor.
This kind of a lease is described as a “fixed-period lease”. Under common law,
there is no restriction relating to the duration of a fixed-term lease. A fixed-term
lease can, for example, be for 20 years, a month or a lifetime.

CPA Where the CPA is applicable, the situation has changed. Section 14(2)(a) of the CPA
states that if a consumer agreement is for a fixed term, that term must not exceed 24
months, unless a longer period was expressly agreed upon and the supplier can show
a demonstrable benefit to the consumer, unless differently regulated (for a detailed
discussion of the CPA and this particular section, please refer to Study Guide 3, study
unit 19, par 19.1). Glover (Lease 368) is of the opinion that the legislature could not
have intended this section to apply to lease agreements. However, the CPA needs
to be amended to remove this absurdity.

renewal of the Where the lease is for a certain period, it often happens that the parties renew the
lease and the CPA contract, either expressly or tacitly, and therefore will not come to an end at the
end of the term. This has been complicated by the CPA. In terms of section 14(2)
(b), a consumer may cancel a fixed-term agreement prior to the expiration of the
agreement by giving notice and by paying a reasonable cancellation penalty. Glover
(Lease 572) contends that this section should not apply to lease agreements, as it
would be detrimental to the leasing industry in South Africa, and that the legislature
should intervene to make the necessary amendment to the CPA. See Study Guide 3,
study unit 19, paragraph 19.1 for a discussion of section 14 of the CPA.

express renewal Little need be said about express renewal. The parties may agree at any time during
the period of the lease to continue with the lease. It is, of course, also possible that
the lease includes an option for the lessee to renew the lease.

Where no date is fixed for notice by the tenant of his/her exercise of the option of
renewal, he/she may give notice that he/she wishes to exercise his/her option during
the subsistence of the lease and within a reasonable time before its expiry, but not
after it has expired.

tacit renewal Tacit renewal comes about if, immediately upon a lease’s expiration, a lessee continues
to hire the same property from the same lessor. Although the parties and the subject
matter must be the same for renewal, there may be a variation of the term of the
original agreement. Renewal of a lease brings a new lease into existence. Dicta
to the contrary appear to have resulted from a failure to recognise that the phrase
“renewal of lease” is used as meaning the reletting of the same property, but not
necessarily on the same terms as the original lease. It is therefore recommended that
we rather refer to these leases as “tacit leases”.

The party claiming a tacit lease must, of course, prove this. The conduct that
constitutes a tacit lease depends on the circumstances of the case. So the tenant,
for instance, may prove that he/she had remained in occupation while the landlord
accepted rent. But where the landlord had accepted rent under the mistaken impression
that the lease was still in force, it has been held that there was no tacit lease, unless
the lessor continued receiving rent for a long time, where a reasonable reliance will
constitute a tacit lease (Parkin v Lippert (1895) 12 SC 179). Note that a tacit lease is not
a renewal of the old lease, but the creation of an entirely new lease. So, for instance,
sureties for the old lease are not bound in respect of the new lease.

LPL4801/1 75
terms of new lease The terms of the new lease will depend on the intention of the parties, but in the
depend on parties’ case of a tacit lease, such intention will not be easily ascertained. However, until the
intention
contrary is proved, it will be presumed that the terms of the new lease are the same
as those of the original lease.

The question of which terms of a lease are deemed to be incorporated on tacit

renewal was discussed in the case of Doll House Refreshments (Pty) Ltd v O’Shea and
Others 1957 1 SA 345 (T). In this case, the court held that there was a presumption
that the property had been relet at the same rent and that all the provisions that were
incidental to the relationship of landlord and tenant were incorporated in the tacit
relocation. The court further held that those provisions of the original lease were
collateral, independent of and not incidental to that relationship were not presumed
to be incorporated into the tacit lease. A right of pre-emption granted to the lessee
was held not to be incidental to the relationship of landlord and tenant and did not
become part of the later tacit lease.

duration of tacit With regard to the duration of the tacit lease, the old authorities distinguished
lease between rural and urban tenancies. In the case of rural tenancies, most of the
Roman-Dutch authorities (including Voet) held that the duration of the tacit lease
was only for a period long enough to enable the lessee to collect the fruits. In the
case of urban tenancies, most authorities hold that the tenant is bound only as long
as he/she remains in occupation, that is, the tacit relocation is a tenancy at will
and the tenant may leave without notice. This viewpoint regarding urban leases was
adopted in an old Transvaal case, Miolee v Boult and Celliers (1892) 4 SAR 257.

Unisa’s opinion: We agree with De Wet & Van Wyk (Kontraktereg 380–381) that it is entirely a matter
tacit relocation to be deduced from the conduct of the parties. Since this is a most difficult,
gives rise to a
periodic lease
sometimes almost impossible question to determine, it is best to presume
that a tacit lease gives rise to a periodic lease. A periodic lease is terminated
by notice, which is discussed below.

RHA This viewpoint is also in line with section 5(5) of the RHA, stating that a tacit lease
is a periodic lease on the same terms and conditions as the expired lease. The section
further prescribes a notice period of at least one month, regardless of the period
of the tacit lease. For a further discussion, refer to study unit 19, paragraph 19.4.2.5.

18.3 NOTICE
periodic lease A periodic lease may be terminated by either of the parties after reasonable notice
has been given. Notice is reasonable if the lease will expire at the end of a
rental period and if it offers the other party a reasonable opportunity to make
alternative arrangements, for example the tenant must give a month’s notice on
or before the first day of the month if the rent is payable monthly. The reasonable
notice period will differ in the case of rural and urban property. For example, in
the case of rural property, the tenant must be given the opportunity to reap his/her
crops. A periodic lease runs from period to period, which is, daily, weekly, monthly
or yearly. For example, if a provision in the lease states that Sandra will pay Jacques
R3 500 monthly, it is a monthly contract. This also implies that a month’s notice
will have to be given to the lessor. If rent is payable per annum, it is a yearly lease
with a year’s notice period.

lease at will A lease at will (“so long as the tenant/landlord pleases”) in respect of either party
can, of course, be terminated only by a reasonable notice given by the person who

76
 STUDY UNIT 18: The termination of a lease

granted the lease. The reasonableness of the notice does not need to run with any
period, as in the case of a periodic lease.

Section 14(2)(a) of the CPA (discussed above) is not applicable to periodic leases or
leases at will, as this section applies only to fixed-term contracts (Glover Lease 572).

18.4 CONFUSIO/MERGER
Merger of titles extinguishes the lease. The lease is therefore extinguished if the
lessee buys or acquires the leased property by other means.

18.5 DESTRUCTION OF THE PROPERTY

A lease is terminated by destruction of the leased property, where such destruction
is not the lessee’s fault. Where the destruction is the lessee’s fault, he/she is liable
for rent for the remainder of the lease and, of course, for the value of the property
as well. If the property is not totally destroyed, however, the lease will not be
terminated. Please refer to study unit 11 for the discussion of remission of rent in
cases of partial destruction.

18.6 RESCISSION FOLLOWING BREACH OF CONTRACT

Naturally, a lease may also be terminated by one of the parties cancelling the contract
on the ground of the non-performance of obligations by the other party. Please refer
to study units 5–16 of this study guide, where cancellation is offered as a remedy in
the case where the lessor/lessee did not meet his/her duties.

18.7 EXTINCTION OF LANDLORD’S TITLE

breach of contract If the landlord’s title is extinguished, this does not necessarily imply the termination
of the lease, but rather the lessor will commit breach of contract if the lessee is evicted.

18.8 INSOLVENCY

18.8.1 Landlord
Insolvency of the landlord does not terminate a lease, provided, of course, that all
the necessary formalities have been complied with.

stipulation that In certain circumstances, however, the lessor’s insolvency does terminate the lease,
lease terminates on that is, where the curator may sell the property free from the lease. In terms of the
insolvency of lessor
null and void
Insolvency Act 24 of 1936, as amended, a stipulation in a lease that the lease be
terminated or varied on the insolvency of the lessor is null and void.

18.8.2 Lessee
This matter is regulated by section 37 of the Insolvency Act 24 of 1936, as amended.
This section of the Act contains some interesting provisions, so we will quote it in
full below:

LPL4801/1 77
 (i) A lease entered into by any person as lessee shall not be terminated by
the sequestration of his estate, but the trustee of his insolvent estate
may terminate the lease by notice in writing to the lessor: provided
the lessor may claim from the estate, compensation for any loss which
he may have sustained by reason of the non-performance of the terms
of such lease.
(ii) If the trustee does not, within three months of his appointment, notify
the lessor that he desires to continue the lease on behalf of the estate,
he shall be deemed to have terminated the lease at the end of three
months.
(iii) The rent due under any such lease, from the date of sequestration of
the estate of the lessee to the termination or cession thereof by the
curator, shall be included in the costs of the sequestration.
This means that the lessor has, for the rent for three months, a preferent
claim against the free residue of the insolvent estate. Where the trustee
of the insolvent lessee continues the lease, he must, naturally, pay the
rent in full.

(iv) The termination of the lease by the trustee in terms of this section shall
deprive the insolvent estate of any rights to compensation for improve-
ments, other than improvements made in terms of an agreement with
the lessor.
(v) A stipulation in a lease that the lease shall terminate or be varied upon
the sequestration of the estate of either party shall be null and void, but
a stipulation in a lease which restricts or prohibits the transfer of any
right under the lease or which provides for the termination or cancella-
tion of the lease by reason of the death of the lessee or of his successor
in title, shall bind the curator of the insolvent estate of the lessee or of
his successor in title, as if he were the lessee or the said successor, or
the executor in the estate of the lessee or his said successor, as the case
may be.

18.9 DEATH

18.9.1 Definite period

The general rule is that death does not terminate a lease where the lease is for a definite
period. The general rule applies, namely that the rights and obligations arising from
the lease pass to the heirs, provided that the heirs accept the inheritance (Lorentz v
Melle 1978 3 SA; Glover Lease 578).

18.9.2 Lease for an indefinite period

The same applies to periodic leases, but the following question arises: Z leases a house
from month to month. On 15 May, Z dies. Does the lease automatically terminate
on 31 May? If not, to whom must the lessor give notice? And as far as the estate is
concerned, must the lease continue until an executor is appointed so that he/she
may terminate the lease by notice?

Unfortunately, our common-law writers and case law are silent on this point. As far
as the general principles are concerned, a lease that is renewable from time to time
depends on consensus, as in any other contract. In the above example, the lease will

78
 STUDY UNIT 18: The termination of a lease

therefore remain in force until 31 May, since for that month the lease did not differ
from one for a definite period. But can the contract continue if the lessee fails to
exercise his will on 1 June? Since the lessee is no longer capable of exercising his will,
it may be argued that the lease was automatically terminated on 31 May. On the other
hand, it could be argued that, pending the appointment of an executor, the Master
steps into the shoes of the lessee and the Master, therefore, may continue the lease
(by failing to give notice). In such a case, notice may be given to and by the Master,
until an executor has been appointed, whereupon the latter may give and receive
notice. This seems to be the position in practice. In any case, whatever practice
may exist, a lease from time to time will survive after the effluxion of the period of
lease during which the lessee died only if the necessary consensus can be construed.

18.9.3 Leases at will

In this case, the lease is terminated by the death of either lessor or lessee, according
to the common-law writers and case law, because there can be no exercising of will.

18.9.4 Express provision

An executor in the estate of the lessee (or in the estate of his/her successor in title)
is bound by a provision in the lease for the termination of the lease by the death of
the lessee or of his/her successor.

18.10 LEGISLATION
Sexual Offences Section 6 of the Sexual Offences Act 23 of 1957 lays down that the lease of a house
Act or a place that becomes a brothel after the conclusion of the contract is terminated
and becomes void as from the date of that event.

The case where the inhabitant of a hotel room merely lives an immoral life does not
fall under this section. In Lomax v Killarney of Durban (Pty) Ltd 1961 2 SA 573 (D), the
proprietor of a hotel sued an occupant of one of its rooms, claiming cancellation of
agreement and ejectment, the conduct complained about being that the defendant
had used the room for immoral purposes. An exception to the declaration was
upheld. A landlord does not have the right to eject his/her tenant of a house, a flat
or a room for privately living an immoral life, while disturbing no one and creating
no nuisance, nor causing anyone any patrimonial loss.

RHA The RHA further provides that a residential lease expires on the date that the
lessor established that the tenant vacated the property. Please refer to study unit 19,
paragraph 19.4.2.4.

ACTIVITY
1. Draw up a table listing all the ways in which a contract of lease may be
terminated.
2. Reread the factual scenario at the beginning of this study unit on page 74
and advise Insika accordingly.
3. Explain what is meant by a fixed-term lease, a periodic lease and a lease at
will, and provide an example of each. Also explain what reasonable notice

LPL4801/1 79
 would be in the case of each of them in order to cancel these contracts
lawfully.

16 FEEDBACK
(1) See 18.1–18.10.
(2) Paragraph 18.8.1 is relevant in this regard.
(3) Provide a definition and example of each, as provided in the study unit.
Remember, a fi xed-term lease terminates by effluxion of time, so no notice
is needed.

80
 19 STUDY UNIT 19
THE RENTAL HOUSING ACT 50 OF 1999

Jennifer rents a residential property from Clifford. The rent is R5 000 per month,
which Jennifer pays promptly every month. The lease agreement is not reduced to
writing. One evening while Jennifer was having dinner with her family, Clifford
barged into the house without prior arrangement. He announced that he was there
to fix the broken shower. Jennifer informed him that it was not a suitable time and
asked him to leave the premises. Clifford was very upset and left under protest. The
next day when Jennifer came home from work, there was a note on the door saying
that Clifford was cancelling the lease agreement and that Jennifer had to move out
within the next five days. It also stated that she would forfeit her deposit due to her
breaching the contract by not allowing him (Clifford) to carry out the necessary
repairs. Clifford had also changed the lock on the garage, which meant that Jennifer
can no longer park her vehicle there. What are her remedies in terms of the RHA?

CONTENTS
19.1 INTRODUCTION
19.2 APPLICATION OF THE RHA
19.2.1 Aims and objectives
19.2.2 Definitions
19.3 GENERAL PROVISIONS
19.4 STATUTORY REQUIREMENTS
19.4.1 Writing
19.4.2 Standard provisions
19.4.2.1 Receipts
19.4.2.2 Deposits
19.4.2.3 Inspection
19.4.2.4 Vacation without notice
19.4.2.5 Tacit renewal
19.4.2.6 Written leases
19.5 RENTAL HOUSING TRIBUNALS
19.6 REGULATIONS
19.7 OFFENCES AND PENALTIES
19.7.1 Unfair discrimination
19.7.2 Infringement of privacy
19.7.3 Offences by the lessee
19.7.4 Refusal by landlord to reduce the lease to writing
19.7.5 Lessor’s failure to comply with the requirements of a written lease
19.7.6 Lessor’s failure to attach list of defects and House Rules to written
lease
19.7.7 Obstructing tribunal proceedings
19.7.8 Unlawful locking-out of rental property

LPL4801/1 81
 LEARNING OUTCOMES

After studying the material for this study unit, you should be able to:

• explain the application of the RHA

• explain and distinguish between the general provisions and statutory requirements
• explain the functions and powers of the Rental Housing Tribunal
• explain the function of the rental housing information offices
• explain all the offences and penalties created by the RHA

19.1 INTRODUCTION
The Rental Housing Act 50 of 1999 (“the RHA”) came into effect on 1 August 2000.
The aim of the RHA is the regulation of the rental housing market, as it has been
a market prone to inequality of bargaining power between lessor and lessee, large-
scale discrimination and the latent effects of the apartheid legislation (Glover Lease
500). It is important to take note of the drastic amendments contained in the Rental
Housing Amendment Act 35 of 2014 “the 2014 Amendment Act”, although this
has not yet come into effect. It is currently uncertain as to when this legislation
will come into force.

19.2 APPLICATION OF THE RHA

19.2.1 Aims and objectives

long title of the The long title of the RHA summarises its objectives as follows:
RHA
To define the responsibility of Government in respect of rental housing
property; to create mechanisms to promote the provision of rental housing
property; to promote access to adequate housing through creating mechanisms
to ensure the proper functioning of the rental housing market; to make
provision for the establishment of Rental Housing Tribunals; to define the
functions, powers and duties of such Tribunals; to lay down general principles
governing conflict resolution in the rental housing sector; to provide for the
facilitation of sound relations between tenants and landlords and for this
purpose to lay down general requirements relating to leases; to repeal
the Rent Control Act, 1976; and to provide for matters connected therewith.

Therefore, we can conclude that the RHA introduces stability into the rental
housing market, thus encouraging private investment in the sector. Secondly, the
RHA empowers tenants to challenge irresponsible landlords to provide rental
accommodation of a standard commensurate with rental levels. Thirdly, the RHA
clarifies the respective rights and duties of the parties involved; by introducing
appropriate contents of lease agreements and creates the basis for provincial tribunals
to facilitate dispute resolution in the rental housing sector.

19.2.2 Definitions
Section 1 provides definitions pertaining to the sphere of application of the RHA.

In the RHA, unless the context otherwise indicates—

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 STUDY UNIT 19: The Rental Housing Act 50 of 1999

dwelling “dwelling”, includes any house, hostel room, hut, shack, flat, apartment,
room, outbuilding, garage or similar structure which is leased, as well as any
storeroom, outbuilding, garage or demarcated parking space which is leased
as part of the lease;

“financial institution” means a bank as defined in the Banks Act, 1990 (Act
No 94 of 1990);

“head of department” means the officer in charge of a department of the

provincial government responsible for housing in the province;

“House Rules” means the rules in relation to the control, management,

administration, use and enjoyment of the rental housing property;

“landlord” means the owner of a dwelling which is leased and includes his or
her duly authorised agent or a person who is in lawful possession of a dwelling
and has the right to lease or sub-lease it;

lease “lease” means an agreement of lease concluded between a tenant and a landlord
in respect of a dwelling for housing purposes;

“MEC” means the member of the Executive Council of a province responsible

for housing matters;

“Minister” means the Minister of Housing;

“periodic lease” means a lease for an undetermined period, subject to notice

of termination by either party;

“prescribed” means prescribed by regulation by the MEC, by notice in the

Gazette;

“regulation” means a regulation made in terms of section 15;

“rental housing property” includes one or more dwellings;

“Rental Housing Information Office” means an office established by a local

authority in terms of section 14(1);

tenant “tenant” means the lessee of a dwelling which is leased by a landlord;

“this Act” includes any regulation;

“Tribunal” means a Rental Housing Tribunal established under section 7;

“unfair practice” means

(a) any act or omission by a landlord or tenant in contravention of this

Act; or

(b) a practice prescribed as a practice unreasonably prejudicing the rights

or interests of a tenant or a landlord.

LPL4801/1 83
 Therefore, “lease” is limited to an agreement of lease concluded between a
tenant and a landlord in respect of a dwelling for housing purposes. A landlord
is defined for purposes of the RHA as the owner of a dwelling which is being leased
and includes his or her duly authorised agent or a person who is lawfully in possession
of a dwelling and has the right to lease or sublease it, while a tenant means the lessee
of a dwelling which is leased by a landlord

proposed In the 2014 Amendment Act, the word “landlord” is replaced by the word “landowner”.
amendment of According to Glover (Lease 501), this will cause a “definitional monster”, as not all
definitions
landlords are landowners.

dwelling The definition of “dwelling” is very wide and is defined as any house, hostel room,
hut, shack, flat, apartment, room, outbuilding, garage or similar structure which is
leased, as well as any storeroom, outbuilding, garage or demarcated parking space
which is leased as part of the lease.

From the above, it should be clear that the application of the RHA is limited to
dwellings used for housing purposes. Thus business premises are excluded and the
applicability of the RHA to situations where a dwelling is used simultaneously for
industrial or commercial purposes, or where a profession is carried out from “home”,
will have to be determined.

It is assumed that hotels and holiday accommodation are excluded from the application
of the RHA, but furnished dwellings, licensed clubs and boarding houses appear
to be included.

19.3 GENERAL PROVISIONS

prohibition of Section 4(1) of the RHA gives effect to section 9(4) of the Constitution of the
discrimination Republic South Africa, 1996 and prevents or prohibits unfair discrimination against
prospective tenants and/or the members of their households in advertising of, or
negotiations concerning, dwellings to let, as well as against tenants, their household
and bona fide visitors during a lease.

privacy In terms of section 4(2) of the RHA, the right to privacy is actively protected in that
the tenant’s right to privacy limits the exercise of the landlord’s right of inspection to
a reasonable manner after reasonable notice; moreover, section 4(3) and 4(4) of the
RHA prohibits the landlord from searching the person, home or property, seizing
possessions without a court order and infringing the communications of the tenant,
household and bona fide visitors of the tenant.

The RHA includes a number of common-law duties of the lessee and introduces
these as rights of the landlord against the tenant.

prompt payment Section 4(5)(a) of the RHA provides for prompt and regular payment of the rent
of rent and other charges.

recovery of unpaid Section 4(5)(b) of the RHA provides for the recovery of unpaid rental or other
rental moneys due and payable after obtaining a ruling by a rental housing tribunal or a
court order.

termination on Section 4(5)(c) of the RHA provides for the termination of the lease on grounds
grounds specified that do not constitute an unfair practice and that are specified in the lease. It is
in lease
even possible that the lawful termination of the lease may still constitute an unfair

84
 STUDY UNIT 19: The Rental Housing Act 50 of 1999

practice. In Maphango v Aengus Lifestyle Properties (Pty) Ltd 2012 3 SA 531 (CC), the
Constitutional Court held that where a landlord terminates a lease, as permitted
under the contract or the common law, such termination may constitute an unfair
practice when the purpose of the termination is to increase the rental in excess of
that agreed to in the escalation clause, or what is considered reasonable.

lessor entitled to Section 4(5)(d)(i) of the RHA provides that on termination of the lease, the landlord
receive property has the right to receive his/her property in a good state of repair, save for fair wear
back in good
condition and tear.

repossession after Section 4(5)(d)(ii) of the RHA provides for repossession of the lessor’s property
obtaining court
after obtaining a court order. This arrangement correlates with the provisions of
order
PIE (see study unit 14 par 14.7 above).

lessor entitled to Section 4(5)(e) of the RHA provides for claiming compensation for damage to the
claim compensation
property caused by the tenant, household or visitors of the tenant. The inclusion of
visitors is an extension of the common law in which the lessee’s responsibility for
damage caused by guests was limited to the case where the lessee had been negligent
in admitting the visitor to the dwelling.

19.4 STATUTORY REQUIREMENTS

The RHA provides the following formal requirements in order to eliminate current
malpractices.

19.4.1 Writing
Section 5(1) of the RHA provides that a lease between a tenant and a landlord need
not be in writing, or be subject to the Formalities in Respect of Leases of Land Act
18 of 1969. The latter part of the section does not make sense, because the last-
mentioned Act does not force parties to register a lease; it merely offers additional
protection to the lessees when the lease is registered (see study unit 10, par 10.2.1).

at request of tenant If the tenant so requests, the landlord must reduce the lease to writing (s 5(2)). The
question of whether the landlord can request that the lease be in writing is left open.
Based on the fact that the legislator specifies that the landlord must, on the tenant’s
request, reduce the lease to writing – and not that if it is requested by either party,
the lease must be reduced to writing – it can be deduced that in the absence of
agreement, the landlord cannot, after conclusion of the contract, unilaterally decide
to reduce the lease to writing.

effect of The RHA makes failure to comply with this duty an offence, in terms of section
non-compliance by 16(a) of the RHA (see par 19.7.4 below).
the lessor

writing required by The 2014 Amendment Act makes it an absolute requirement that all residential leases
2014 Amendment should be in writing, and failure to comply with this will be an offence. It further
Act
requires the Minister to make available pro forma lease agreements in all 11 official
languages.

LPL4801/1 85
 19.4.2 Standard provisions
the following All leases, whether in writing or not, are deemed to include the following
provisions may not standard provisions, which may not be waived by the tenant or the landlord
be waived
(s 5(3) and (4)).

19.4.2.1 Receipts
receipt The lessor must provide the lessee with a written receipt for each payment received
from the tenant (s 5(3)(a)). These receipts must be dated and describe the dwelling in
respect of which payment is made, as well as the nature of and the period for which
payment is made (s 5(3)(b)).
The lessor must also provide receipts to the lessee as proof of costs incurred by the
lessor in repairing damage caused to the dwelling during the lease period, as well
as any costs incurred in replacing lost keys, which costs have been paid from the
deposit (s 5(3)(h) and (n)).

19.4.2.2 Deposits
deposit To demand a deposit is permissible, but the deposit may not be more than the amount
specified in the contract (s 5(3)(c)). The RHA does not limit the amount of the deposit.
must be invested The deposit must be invested by the landlord in an interest-bearing account with
a financial institution and the lessor must pay the tenant interest at the applicable
rate, which may not be less than the interest rate on savings accounts with a bank.
The landlord must provide written proof in respect of accrued interest, if requested
((s 5(3)(d)).
may use deposit When the lease is terminated, the lessor may use the deposit and interest towards
towards unpaid the payment of unpaid rental or any other amounts due and payable by the tenant
rental
under the lease, including the reasonable cost of repairing damage to the dwelling
during the lease period and the cost of replacing lost keys (s 5(3)(g) and (l )). If there
is a balance of the deposit and interest, the lessor must refund this to the tenant
within 14 days of restoration of the dwelling (if a common outgoing inspection has
been held) or 21 days after expiration on the lease (if the tenant failed to attend an
outgoing inspection) (s 5(3)(g) and (m)). If no money is owed in terms of the lease,
the lessor must refund the deposit, together with the accrued interest to the lessee,
without any deduction or set-off, within seven days of termination of the lease (s
5(3)(i)).

19.4.2.3 Inspection
joint incoming Before the lessee takes occupation of the premises, the parties must together inspect
and outgoing the dwelling to ascertain any defects or damage to determine the lessor’s responsibility
inspection
for rectifying such defects or damage, as well as to register such defects or damage
in a list (s 5(3)(c)), which list must be attached to the lease, if the lease is a written
lease (s 5(7)).
At the termination of the lease, the lessor and lessee must arrange a joint inspection
of the premises. This inspection must take place three days before the end of
the lease and the aim thereof is to ascertain whether the tenant, household and/
or visitors of the lessee caused any damage to the premises during the lease
(s 5(3)( f )).

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 STUDY UNIT 19: The Rental Housing Act 50 of 1999

failure = If the lessor fails to inspect the premises in the presence of the lessee, such failure
acknowledgement is deemed to be an acknowledgement by the lessor that the premises are in a good
of property in good
order
and proper state of repair. In this case, the lessor will have no further claim against
the lessee, who must then be refunded the full deposit, including interest (s 5(3)( j)).

If the tenant fails to respond to the lessor’s request for an inspection, the
lessor must inspect the premises within seven days from the termination of the
lease in order to assess any damages or loss that occurred during the lease period
(s 5(3)(k)).

19.4.2.4 Vacation without notice

vacation without If the lessee should vacate the premises before expiration of the lease, without
notice = lessor notice to the lessor, the lease is deemed to have expired on the date that the lessor
retains all rights
established that the tenant had vacated the premises. If this should happen, the
lessor retains all his/her rights arising from the lessee’s breach of the lease contract
(s 5(3)(o)).

19.4.2.5 Tacit renewal

tacit renewal Where the parties have not expressly agreed thereto, the contract is deemed to have
been renewed on the expiration of the lease if the lessee remains in the premises
with the express or tacit consent of the landlord (s 5(5)). This lease qualifies as a
periodic lease, on the same terms and conditions as the expired lease, except that
at least one month’s written notice must be given of the intention by either party
to terminate the lease (s 5(5)). A periodic lease is a lease that runs from time to time,
until brought to an end by notice.

19.4.2.6 Written leases

writing must In terms of the RHA, a written lease must include the essentials of the contract of
include essentials letting and hiring of a thing, namely the names of the parties, a description of the
premises, and the amount of rent (s 5(6)(a), (b) and (c )).

The RHA also requires the addresses of the parties (s 5(6)(a)); any other charges
payable (s 5(6)(h); provision for a reasonable escalation, if desired (s 5(6)(c)); when
payments are to be made, if they are not to be made monthly (s 5(6)(d)); the amount
of the deposit (s 5(6)(d)); the period for which the lease is to be concluded; as well
as the notice period (s 5(6)( f )).

House Rules Attached to the contract must be a copy of the House Rules, if there are any, and
the list of defects registered during the inspection must also be attached as an
annexure to the lease contract (s 5(6), (7) and (8)). The RHA does not specify what
the consequences will be if the lessor fails to fulfil the requirements set out in section
5(6), (7) and (8). As a result, the general principle will apply, namely that contracts
that are contrary to some rule of law are unenforceable. Therefore, non-compliance
with these provisions of the RHA causes the agreement to be invalid, which leaves
the contracting parties without the protection of the RHA and without the protection
of the common law of lease.

The lessor is obliged to follow the other requirements set out by the RHA. Should
he/she fail to do so, he/she may be found guilty of a crime (s 16(a)).

LPL4801/1 87
proposed The 2014 Amendment Act replaces the provisions of sections 4 and 5 of the RHA
requirements (partly discussed above) so that the new section 4A will deal with the rights and
obligations of tenants, and section 4B will deal with the rights and obligations of
lessors. Any rights or obligations that are provided for in these two sections will
ex lege become applicable to a residential lease within a six-month period from the
time the 2014 Amendment Act comes into force. These rights and obligations are
similar to the current rights and obligations, but are more detailed in many respects.

19.5 RENTAL HOUSING TRIBUNALS

establishment In terms of section 7 of the RHA, the MEC may, by notice in the Gazette, establish
a tribunal in the province in which he/she is appointed as MEC, to be known as a
Rental Housing Tribunal (hereinafter referred to as “the Tribunal”).

complaint Any lessee or lessor, or groups of lessees or lessors or interest group, can lodge
a complaint concerning an unfair practice with the Tribunal (s 13(1)). In terms of
unfair practice
section 1 of the RHA, an unfair practice is defined as any act or omission in terms
of the RHA and regulations, or a practice prescribed as a practice unreasonably
prejudicing the rights and interests of a lessor or lessee. The open norm of “unfair
practices” may be given content by further regulations of the Minister of Housing
(s 15( f )).

procedure If it appears that a dispute concerning an unfair practice exists, the Tribunal must
enter the particulars of the dwelling in the complaints register (s 13(2)). Thereafter,
no jurisdiction on
eviction an inspector investigates whether the dispute in question relates to an unfair practice
(s 13(2)(b)). The Tribunal does not have jurisdiction to grant eviction orders (s 13(13)).

dispute concerning If the Tribunal is of the opinion that the dispute is an unfair trade practice and
unfair trade that the dispute may be resolved through mediation, the Tribunal appoints a
practice: mediation
mediator (s 13(2)(c)). A mediation agreement may be made a ruling of the Tribunal
(s 13(12)(b)).

hearing If, in the view of the Tribunal, mediation is not a viable option or if the mediator
has certified that the mediation was unsuccessful, the Tribunal conducts a hearing (s
13(2)(d)). The Tribunal may require a Rental Housing Information Office to submit
reports and to give advice regarding any inquiries and complaints received (s 13(3)(a)
and (c)). Inspectors may be required to appear in order to give evidence, to provide
information, or to produce any report or other document concerning inspections
conducted in respect of a complaint (s 13(3)(b)).The Tribunal may summon any lessee
or lessor, as well as any other person who may be able to give evidence relevant
to a complaint, or any person who may reasonably be able to give information of
material importance concerning a complaint, or who has in his/her possession or
custody or control any book, document or object, and to produce any such book,
document or object (s 13(3)(d) and (e)).

may make a ruling The Tribunal may, at the conclusion of the hearing, do any of the following:

comply with RHA (1) The Tribunal may rule that any person must comply with the RHA
(s 13(4)(a)).
referral of (2) If a contravention of the law comes to light, the Tribunal may refer the matter
non-compliance to a competent body or local authority for investigation (s 13(4)(b)).
terminate unfair (3) If the Tribunal finds that an unfair practice does exist, it may make a ruling
practice to terminate that unfair practice, providing that such ruling is just and fair

88
 STUDY UNIT 19: The Rental Housing Act 50 of 1999

(s 13(4)(c)). It may also rule to discontinue overcrowding, unacceptable living

conditions, exploitative rentals or lack of maintenance (s 13(4)(c)(i), (ii), (iii)
and (iv)).
The legislator stipulates (s 13(6)) that a Tribunal must consider five factors
before reaching a decision on (1) to (3), namely:

• the regulations on unfair practices

• the provisions of the lease
• the common law
• national housing policy and national housing programmes
• the need to resolve matters in a practicable and equitable manner
determine rental (4) The Tribunal may determine what constitutes a just and equitable rental to
both lessee and lessor (s 13(5)). There are three factors that must be taken
into account to determine a just and equitable rental, namely the current
economic conditions of supply and demand, the need for a realistic return
on investment, and the measures introduced by the Minister of Housing in
the national policy framework on rental housing (s 13(5). The Tribunal must
take all three factors into account.
(5) The Tribunal may make a spoliation and attachment order (s 13(12)(c)).
The RHA does not prescribe that the rulings of the Tribunal are to be in writing or
that reasons must be given. Rulings by a Tribunal are deemed to be the equivalent
of an order of a magistrates’ court (s 13(13)). A magistrates’ court may refer a dispute
regarding an unfair practice to the Tribunal (s 13(11)). The question on concurrent
jurisdictions has not been resolved. Although the RHA states explicitly that nothing
precludes a person from approaching a competent court for urgent relief, or from
instituting proceedings for the normal recovery of arrear rental, or for an eviction
order, this section is subject to the proviso “in the absence of a dispute regarding
an unfair practice” (s 13(10)).

The RHA stipulates that the lessee must continue to pay the rent and the lessor must
maintain the property and may not evict the lessee from the date of the lodging of
a complaint until the date of a ruling, or three months – whichever is the earlier
(s 13(7)(a–c)). The Tribunal may also make a just and equitable ruling regarding
costs (s 13(12)(a)).

proposed powers The 2014 Amendment Act broadens the scope of the Tribunal’s powers, specifically
in respect of rescinding, varying, supplementing or amending its orders within 14
days, either by application by affected persons, or at its own discretion.

19.6 REGULATIONS
The Minister must, inter alia, make regulations prescribing unfair practices. These
regulations are of importance for the operation of the RHA.

The RHA provides a list of matters in respect of which such unfair practices are
suspected and in relation to which regulations will probably be enacted. These include
the changing of locks, deposits, damage to property, demolitions and conversions,
eviction, forced entry and obstruction of entry, House Rules, intimidation, issuing of
receipts, tenants’ committees, leases, municipal services, nuisances, overcrowding and
health matters, tenant activities, and maintenance, reconstruction or refurbishment
work (s 15(1)( f )(i–xvi)).

LPL4801/1 89
proposed The 2014 Amendment Act also proposed strict regulations by the Minister relating
regulations to the standard of living offered by the leased property, including issues such as
health and safety, overcrowding and affordability.

19.7 OFFENCES AND PENALTIES

The RHA introduces offences as a mechanism to ensure compliance with the RHA.
The failure to comply with general provisions and/or provisions pertaining to leases,
or the failure to comply with a ruling or a request of the Tribunal, or a contravention
of a regulation, or the obstructing of procedures of the Tribunal, or the producing
of false documents and the making of false statements, are all considered offences.
The following are important offences.

19.7.1 Unfair discrimination

A person who, in advertising premises for rent, or in negotiating a lease, or during a
lease, unfairly discriminates against a prospective tenant or a tenant, or members of
the household or the bona fide visitors, on the basis of race, gender, sex, pregnancy,
marital status, sexual orientation, ethnic or social origin, colour, age, disability,
religion, conscience, belief, culture, language and birth, will be guilty of an offence
and liable to a fine or imprisonment not exceeding two years, or to both (s 4(1)
together with s 16(a)).

19.7.2 Infringement of privacy

A lessor who exercises his/her right of inspection in an unreasonable manner
without reasonable notice; searches the property, person or home; seizes without
court order the possessions; or infringes the privacy of the communications of the
lessee, household or visitors of the lessee, will be guilty of an offence (s 4(2)–(4)
together with s 16(a)).

19.7.3 Offences by the lessee

Where the lessee does not promptly pay the rent or charges, does not vacate the
premises on proper termination of the lease by the lessor, does not return the
dwelling in a good state of repair and does not pay compensation for damage caused
by himself/herself, the household or visitors, he/she will be guilty of an offence (s
4(5) together with s 16(a)).

19.7.4 Refusal by landlord to reduce the lease to writing

A lessor who refuses (if so requested by the lessee) to reduce the lease to writing will
be guilty of an offence (s 5(2) together with s 16(a)).

19.7.5 Lessor’s failure to comply with the written requirements of a lease

A lessor who fails to ensure that the written lease includes the names and addresses
of both lessor and lessee, the description of the premises, the rental amount and
the escalation thereof, if any, other charges, the frequency of payment, the amount

90
 STUDY UNIT 19: The Rental Housing Act 50 of 1999

of the deposit, the period of lease or the notice period, and the obligations of the
parties in accordance with the RHA and regulations will be guilty of an offence (s
5(6) and (9) together with s 16(a)).

19.7.6 Lessor’s failure to attach list of defects and House Rules to written
lease
A lessor who fails to attach the list of defects to the written lease will be guilty
of an offence (s 5(7) and (9) together with s 16(a)). Where a lessor fails to attach a
copy of the House Rules to the written lease, he/she will be guilty of an offence
(s 5(8) and (9) together with s 16(a)).

19.7.7 Obstructing tribunal proceedings

A person summoned by a tribunal, who fails without good reason to appear or to
remain in attendance, is guilty of an offence (s 16(b)(i) and (ii)).

In terms of section 16(d)–(f), a person who refuses to be sworn or to make an

affirmation as a witness, is guilty of an offence; a person who fails to answer fully and
satisfactorily the questions of the Tribunal, or who, after having been summoned to
do so, fails to produce a book, document or object is guilty of an offence; a person
who intentionally produces a false document or makes a false statement before the
Tribunal is guilty of an offence; and where a person does not comply with a ruling
of the Tribunal, he/she is guilty of an offence.

19.7.8 Unlawful locking-out of rental property

A person who unlawfully locks out a tenant or shuts off the utilities to the rental
housing property is guilty of an offence and liable to a fine or imprisonment not
exceeding two years, or both (s 16(hA)).

proposed offences The 2014 Amendment Act introduces a number of “new” offences. Once it becomes
operational, it will be an offence if the landlord does not reduce the lease to writing.
It will also be an offence if the landlord does not repay the deposit plus the interest
earned to the tenant at the end of the lease.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 81 and
advise Jennifer accordingly.

17 FEEDBACK

Your answer should, firstly, include why the RHA is applicable to this factual
scenario. Secondly, you should address the tenant’s right to privacy in terms
of the RHA, as well as whether the lease agreement was lawfully cancelled in
terms of the common law and the RHA. (Remember: the RHA does not replace
the common law of lease; it merely codifies and/or amends and expands it). You
should be able to identify this lease as a periodic lease. Thereafter, you should

LPL4801/1 91
 mention the various applicable offences and the powers of the Tribunal. You
should also discuss Jennifer’s common-law contractual remedies, and combine
and integrate the common law with the statutory law.

92
 Bibliography

BIBLIOGRAPHY

Bradfield G and Lehman K Principles of the law of sale and lease 3rd ed (Juta 2013)
Cooper WE Law of Landlord and Tenant 2nd ed (Juta 1994)
De Vos W Verrykinsaaspreeklikheid in die Suid-Afrikaanse Reg (Juta 1987)
De Wet JC and Van Wyk Die Suid-Afrikaanse kontraktereg en handelsreg 5th ed Vol 1
(Butterworths Durban 2014)
Glover G Kerr’s Law of sale and lease 4th (LexisNexis Durban 2014)
Hawthorne L “The Lessee’s right to commodus usus” 1989 THRHR 124
Van Schalkwyk LN and Van der Spuy P de W General Principles of the law of things
8th ed (Kourse Publishing 2012)

HSY3704/1 93
 Department of Private Law

LPL4801
Law of Sale
Study Guide 2

Prof Tomas Floyd

Mrs Helen Trytsman

University of South Africa, Pretoria

© 2016 University of South Africa

All rights reserved

Printed and published by the

University of South Africa
Muckleneuk, Pretoria

LPL4801/2/2017–2019

70507694

InDesign

HSY_Style
 CONTENTS

 Page

Study unit 1: The influence of the Consumer Protection Act

68 of 2008 (“the CPA”) and the National Credit
Act 34 of 2005 (“the NCA”), the Alienation
of Land Act 68 of 1981 (the “ALA”) and other
legislation on the common law of sale1

Study unit 2: Characteristics of a contract of sale4

Study unit 3: Formalities required for the conclusion of a

binding contract of sale 16
Study unit 4: The seller’s duties: the duty of custody17

Study unit 5: The seller’s duties: the duty to deliver20

Study unit 6: The seller’s duties: the seller’s “guarantee”

against latent defects in the thing sold 25
Study unit 7: The seller’s duties: the seller’s obligation to
transfer ownership or to warrant against eviction44

Study unit 8: The duties of the purchaser 56

Study unit 9: The risk in contracts of sale 60

BIBLIOGRAPHY 69

LPL4801/2/2017–2019iii
 1 STUDY UNIT 1
The influence of the Consumer Protection
1

Act 68 of 2008 (“the CPA”) and the National

Credit Act 34 of 2005 (“the NCA”), the
Alienation of Land Act 68 of 1981 (the “ALA”)
and other legislation on the common law of
sale

GMT (Pty) Ltd is a property developer in Gauteng. They build townhouses

to sell to the public. They do not provide financing to their purchasers. GMT
(Pty) Ltd has been using the same standard form agreement since 1990, when
it started its business. The legal representative of the company approaches
you for advice on whether the company will have to amend the agreement
after the commencement of the NCA and the CPA.

1 OVERVIEW
The major legislation impacting on the law of sale is briefly discussed to provide a
framework to which students can refer in their study of this guide.

CONTENTS
1.1 THE INFLUENCE OF THE NCA ON SALE AGREEMENTS
1.2 THE INFLUENCE OF THE CPA ON SALE AGREEMENTS
1.3 THE INFLUENCE OF THE ALA ON SALE AGREEMENTS

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• explain that the NCA is applicable to certain sale agreements and be able to
explain its major implications for the law of sale in broad terms
•• explain that the CPA is applicable to certain sale agreements and be able to explain
its major implications for the law of sale in broad terms
•• explain that the ALA is applicable to certain sale agreements and be ble to explain
its major implications for the law of sale in broad terms

1.1 THE INFLUENCE OF THE NCA ON SALE AGREEMENTS

Please refer to Study Guide 3, study units 3–17, for a detailed discussion of the NCA
and its operation. In a nutshell, it is important that you always bear in mind that
the NCA is applicable to credit agreements at arm’s length that are not specifically
exempted in the NCA. Where the NCA is applicable, the CPA is not applicable to the

LPL4801/21
 transaction itself but is still applicable to the goods. This is explained in Study Guide
3, paragraph 18.4.2. The NCA has a big impact on sale agreements that fall under
the Act. For instance, it regulates pre-agreement requirements such as pre-agreement
statements; it also regulates the maximum interest rates that may be charged and
places an obligation on the seller to ensure that the buyer can afford the credit before
the agreement is entered into. It further prohibits the inclusion of certain terms in
the agreement, and it prescribes that agreements may not be entered into in certain
places. In this study guide you will be referred to relevant aspects in Study Guide
3 relating to the impact of the NCA on the law of sale. When the provisions of the
NCA are not complied with, in many instances this impacts on the validity of that
particular sale agreement. It is therefore always important, when faced with a dispute
pertaining to a sale agreement, to determine whether the sale agreement is a credit
agreement in terms of the NCA. If it is not a credit agreement, it is not subject to
the NCA, but it might be subject to the CPA, which will be discussed next. Please
remember that all the study units in Study Guide 3 should also be read as a whole,
and not only as and when referred to in this study guide.

1.2 THE INFLUENCE OF THE CPA ON SALE AGREEMENTS

After reading through study unit 18 in Study Guide 3 you will know that the CPA
To which sale is applicable to many sale agreements. In short, the CPA applies to every transac-
agreements are the
tion for the supply of goods between a supplier and a consumer occurring within
CPA applicable?
the Republic, in exchange for a consideration, in the ordinary course of business,
unless specifically exempted from the operation of the CPA. After studying the said
study unit, you will understand and be able to identify the exemptions of certain
sale agreements from the operation of the CPA, for example where the agreement
is subject to the NCA. The CPA has a big impact on the direct contractual relation-
ship between the buyer and the seller. It prohibits certain terms and provisions in
the agreement, regulates the quality of the goods sold by the supplier, regulates the
pricing of goods and changes the common law risk rule, to name a few important
provisions. As we work through the various study units of this study guide together,
you will be referred to Study Guide 3 regarding the impact of the CPA on certain
sale agreements. Please remember that all the study units in Study Guide 3 should
be read as a whole, and not only the sections referred to in this study guide.

1.3 THE INFLUENCE OF THE ALA ON SALE AGREEMENTS

The ALA applies to the sale of immovable property. The first important rule is that
all such contracts must be reduced to writing. Furthermore, residential property sold
on instalments is also subject to certain invariable terms. A full discussion of the
operation and impact of this Act can be found in Study Guide 3, study units 1 and 2.

The following schematic outline will be helpful to you in understanding the interac-
tion between the relevant legistation as you study the common law relating to the
law of sale.

2
 STUDY UNIT 1: The influence of the various legislation

COMMON LAW as modified by:

ALA NCA CPA
(Alienation of Land Act (National Credit Act 34 (Consumer Protection
68 of 1981 ) of 2005) Act 68 of 2008)
Applies to alienation Applies to credit agree- Applies to sale of goods
of land, including sale ments as defined in the between supplier (seller)
of land. (For full scope NCA, including sales on and consumer (purchas-
of the ALA, see Study credit. er) as defined in the CPA.
Guide 3, study unit 1.)
(For full scope of the Seller must sell proper-
Chapter 2 contains fur- NCA, see Study Guide ty in ordinary course of
ther provisions dealing 3, study unit 4.) business.
with sale of land on cre­
(The field of application
dit (Study Guide 3, study
of the CPA is discussed
unit 2).
in Study Guide 3, study
unit 18.)
Possible interplay between above
It is possible that both Chapter 2 of the ALA and the NCA can apply to the
sale of land on credit. Where conflict arises between the two acts, s 172(1) of
the NCA, read with Schedule 1, provides that the NCA will prevail.
It is possible that both the ALA and the CPA could apply to the sale of land.
Where conflict between the two Acts arises, s 2(9)(b) of the CPA provides that
the legislation which affords greater protection to the consumer (purchaser)
will apply.
S 5(2)(d) of the CPA provides that a credit agreement governed by the NCA
is excluded from the application of the CPA, but that the goods subject to the
credit agreement are not excluded from the CPA. This exclusion is discussed
in detail in Study Guide 3, study unit 18.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 1. Provide
legal advice to GMT (Pty) Ltd.

1 FEEDBACK
At this stage, you will be able to advise the company in broad terms regarding
the effect of the CPA on common law sale agreements. The most important point
at this stage is that you should be able to determine that the CPA, and not the
NCA, may be applicable to this transaction, as the company seems to be selling
townhouses for cash in the ordinary course of business. Therefore their standard
form sale agreements may have to be amended, to comply with the CPA. You
are encouraged to return to this activity once you have worked through all the
study units of this study guide and to do it again. This time you will be able to give
specific legal advice to your client.

LPL4801/2 3
 2 STUDY UNIT 2
2 Characteristics of a contract of sale

Sibongile concludes a contract with John to manufacture a lounge suite for her,
using timber he will supply, for R30 000. John fails to deliver the lounge suite in
the time frame of a month, as he undertook to do in the contract, because his fac-
tory has burnt down and all his timber has been destroyed. John claims payment of
R30 000 from Sibongile.

OVERVIEW
The two essentialia of the contract of sale, namely, delivery of a thing and payment
of a price, are discussed.

CONTENTS
2.1 INTRODUCTION
2.2 THE UNDERTAKING TO DELIVER A THING
2.2.1 The undertaking to carry out an act of transfer
2.2.2 The emptio rei speratae (sale of a future thing) and the emptio spei (sale
of a pure chance)
2.2.2.1 Emptio rei speratae
2.2.2.2 Emptio spei
2.2.3 The emptio ad mensuram (sale of a group of things at a price per unit)
2.2.4 Sales in the alternative and generic sales
2.3 THE UNDERTAKING TO PAY A PRICE
2.3.1 The price as a sum of money
2.3.2 Another performance together with the price
2.3.3 A contract of sale for a reasonable price
2.3.4 A contract of sale in which no price is stipulated
2.3.5 Determination of the price by a third party
2.3.6 Determination of the price by one of the contracting parties
2.3.7 Pricing and the CPA
2.3.8 Pricing and the NCA

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• explain the essentialia of a contract of sale
•• distinguish between essentialia and the requirements for validity
•• distinguish between sale and lease
•• distinguish between essentialia, naturalia and incidentalia
•• understand that claims can be sold
•• explain the influence of the true intention of the parties in determining whether
the essentialia for a sale exist

4
 STUDY UNIT 2: Characteristics of a contract of sale

•• distinguish between the undertaking and performance of an obligation

•• distinguish between a contract of sale and a contract for the letting and hiring
of work
•• explain what an emptio rei speratae and an emptio spei are
•• distinguish between the emptio rei speratae and the emptio spei
•• explain what an emptio ad mensuram is
•• explain what an emptio per quantitatem is
•• explain what an alternative sale is
•• explain what a generic sale is
•• explain how to determine whether a trade-in is a contract of sale
•• explain whether a contract of sale for a reasonable price is valid
•• explain whether a contract of sale in which no price is stipulated is valid
•• explain the determination of the price by a third party
•• explain whether a contract of sale is valid where the price is determined by one
of the parties
•• explain the relevance of the case law, as discussed in this study unit
•• apply the rules discussed here, and the prescribed cases, to practical problems
•• explain and apply the role of the CPA in price setting
•• explain and apply the role of the NCA in price setting

2.1 INTRODUCTION
definition A contract of sale is a specific type of contract. A contract of sale is a reciprocal
contract in terms of which one person, the seller, undertakes to deliver a thing to
the other, the buyer, and the latter, in turn, undertakes to pay the former a sum of
money in exchange for the thing.

two essentialia According to this definition, there are two essentialia (characteristics) for a contract
of sale. The parties must agree that one of them will deliver a thing (res) and that the
other will pay a price (pretium) for it.

requirements for The requirements laid down for contracts in general should not be confused with
validity the characteristics of a particular class of contract. It is obvious that a contract of
sale can be binding only if, amongst other, there is agreement between the parties,
but the presence of consent (or any other general requirement) does not serve to
classify a contract.

distinction It is of great importance to distinguish a genuine contract of sale from a lease. As

between sale and has been shown, in the case of a contract of lease, one party also undertakes to de-
lease liver a thing and the other party undertakes to pay a sum of money. So what is the
distinction between contracts of sale and lease? In addition to the above essentialia,
a lease contains a further essentiale, namely that the parties must agree expressly or
tacitly that the lessee must restore the thing leased to the lessor at some future time.
Contracts of sale do not contain a similar clause. Herein lies the difference between
sale and lease. Of course, it is certainly possible for a genuine contract of sale to be
made subject to a suspensive or a resolutive condition, or for a right of rescission to
be stipulated so that in certain circumstances the thing may have to be returned to
the seller after all. However, such an obligation to restore the thing arises differently
from the normal obligation to restore the thing hired out in a contract of lease. It
arises not out of the conclusion of the contract, but out of the cancellation of the
contract. In the case of a lease, however, the contract cannot be regarded as having
been fulfilled until restoration has taken place. If one bears this additional essentiale in
mind, it is unnecessary to search for a further essentiale in contracts of sale in order to

LPL4801/2 5
 distinguish between the two kinds of contracts. In fact, the correct approach to the
above-mentioned essentialia of contracts of sale will always enable one to recognise
a contract of sale as distinct from other contracts.

title You will note that it is not an essentiale of contracts of sale that the seller of a thing
must guarantee that he or she is the owner of the goods. A clause in a contract of
sale to the effect that a seller guarantees his title would be a mere incidentale. It is,
moreover, not even a naturale of a contract of sale that a seller should guarantee his
title. As long as the parties agree that the seller will, in exchange for the payment of
a sum of money, pass possession of the thing to the buyer (without the qualification
that it must be restored to the seller before the expiry of the contract), the transac-
tion is a contract of sale in law, even though both parties may be well aware of the
fact that the seller is not the owner. It is, however, a naturale that the seller provides
the purchaser with a warranty against eviction. See, in this regard, study unit 7 on
eviction.

selling of claims Although it would appear that the essentialia of a contract of sale are embodied in
the above definition, the description is rather inaccurate. For one thing, it is not
only things (i.e. corporeal entities) that can be sold; a personal right (claim) can
also be sold. X could, for example, undertake to transfer his claim against Y to Z
in exchange for a monetary consideration, which would create a straightforward
contract of sale. (Do not confuse the juristic act that creates the obligation(s) with
the act of transfer or cession, even though it is possible for the two juristic acts to
be performed in the same breath.) It would therefore be more accurate to speak of
an undertaking to deliver or transfer a thing or other economic entity (in exchange
for a monetary consideration). Very often, however, the problem with the definition
under consideration is overcome by regarding rights as things, as well as so-called
incorporeal things. Consequently, no amendment of the definition is needed. This
usage is soundly established, but regrettable. In the sections that follow it will be
retained for practical reasons.

simulation It must be pointed out that the parties’ representation in regard to the nature of
their contract (simulation) should in no way influence the court’s decision on this
point. All that need be noted is the nature of the duties to which the parties commit
themselves, as well as whether these duties correspond to the essentialia of a contract
of sale. This is particularly important if it is borne in mind that, apart from the fact
that parties are not normally competent to give a final decision on this important
question, a simulation could easily be present.

reliance protection The parties are concerned only with the existence and content of the obligations
arising from the contract. If they are agreed on the obligations, it makes no differ-
ence what they call their contract. It may happen, however, that the parties call their
contract one of sale, for example, and that this gives one of the parties the wrong
impression about the content of the contract (i.e. that the naturale is that of a sale).
Although this gives rise to a material error, such an impression can be upheld in
certain circumstances (the party’s reliance is protected by either the justus error or the
direct reliance approach), and therefore the name given to a contract by the parties
may well play a part inter partes. For a discussion of error, see the general principles
of the law of contract.

distinction be- A valid contract of sale is concluded as soon as the seller undertakes to deliver a thing
tween undertaking and the purchaser undertakes to pay a price, and not only when the seller delivers
and performing an
obligation
the thing or the purchaser pays the price. By undertaking to deliver and to pay, the
parties create obligations, and once they perform the obligations they have created,
the obligations are extinguished.

6
 STUDY UNIT 2: Characteristics of a contract of sale

conclusion There are two essentialia for contracts of sale, namely, an undertaking to deliver or
deliver a thing (or other economic entity) on the one hand in exchange for an un-
dertaking to pay a sum of money on the other hand. Each of these essentialia will
now be discussed in detail.

2.2 THE UNDERTAKING TO DELIVER A THING

2.2.1 The undertaking to carry out an act of transfer

delivery There can be a contract of sale only if the seller’s obligation to perform consists
principally in delivery in contrast to an obligation to do, or not to do, something.

obligation to do Thus, a contract in terms of which A undertakes to have a servitude registered

something
over his land in favour of B, in exchange for monetary compensation, cannot be
a contract of sale (see, however, Brink v Stadler 1963 2 SA 427 (C)). This is not an
agreement to deliver a thing or an economic entity, but an agreement to cooperate
in the creation of a right.

locatio conductio A locatio conductio operis (contract for the letting and hiring of work) is an agreement
operis whereby an independent contractor undertakes to render the result of his labour to
the other party. The contract of sale can be distinguished from the locatio conductio
operis in that a seller’s obligation is essentially one to deliver, while that of the person
accepting work is essentially a duty to do something. Thus, if a contract relates to
the manufacture and delivery of a thing not yet in existence, the contract will be a
sale only if the manufacturer also provides the materials for the manufacture of the
thing (SA Wood Turning Mills (Pty) Ltd v Price Bros Ltd 1962 4 SA 263 (T)). In the last-
mentioned case, the court decided that the contract between the printing business
and a company that had ordered the printing of a thousand copies of a catalogue
was a sale agreement, as the printer had used his own paper and ink. Otherwise,
the obligation of the person who has to deliver the thing will consist essentially in
the manufacture of the thing (i.e. work that must be done) and not in the delivery
of the thing.

2.2.2 The emptio rei speratae (sale of a future thing) and the emptio spei
(sale of a pure chance)
not yet in existence A contract in terms of which one party undertakes to deliver a thing not yet in
existence to another party in exchange for the payment of a sum of money can pass
as a contract of sale, in spite of the fact that the thing does not exist at the time of
the conclusion of the contract. The best-known forms of contract of sale of things
not yet in existence are the emptio rei speratae and the emptio spei:

duty to see that In both these forms of sales, the seller has a duty not only to deliver the thing, but
thing materialises
also to see that the thing materialises so that it can be delivered. The seller is excused
from this latter duty only if the lack of a thing to be delivered is caused by chance.

delivery must be It must be possible to deliver the thing as from the conclusion of the contract. If not,
possible
the contract will be of no force and effect owing to initial impossibility of perfor-
mance. For a discussion on this, refer to the general principles of the law of contract.

LPL4801/27
 2.2.2.1 Emptio rei speratae
price payable only An emptio rei speratae occurs where, in the sale of a thing not yet in existence, it is the
if thing comes into intention of the parties that the price will be paid only if the thing does in fact come
existence
into being. Thus S and P could enter into an emptio rei speratae in respect of S’s next
harvest at a price per unit (say R100 per bag), or in respect of a calf still to be born
(at a price laid down as at the conclusion of the contract). If, contrary to the expec-
tations of the parties, the thing does not come into existence, it is usually said that
there will be no sale.
suspensive condi- This result is explained by some writers as the operation of a suspensive condition.
tion construction
The full operation of the contract of sale is suspended until the occurrence of an
function uncertain future event, namely the coming into being of the thing. If the thing
does not come into being, the contract of sale comes to an end. The function of the
condition construction in the type of sale under consideration is probably, firstly,
to explain why the purchaser cannot claim the thing immediately and, secondly, to
explain why the risk that the thing that is being sold will not materialise is borne by
the seller. (For a detailed discussion of the risk rule, please see study unit 9 below.) It
would seem that the construction of this concept in terms of a suspensive condition
brings with it complications and is, moreover, incorrect and unnecessary.

complications If the concept of a genuine condition is employed, that is, the condition that the thing
must come into existence, the doctrine of fictitious fulfilment of a condition applies
and may give rise to problems where the price has been fixed per unit. For instance,
if in the above example of the harvest, S prevents the harvest from being gathered,
the condition must be deemed to have been fulfilled, namely, that the harvest has,
in fact, been produced. If this is so, what is the price, in view of the fact that the
number of units that would have come into being is unknown?
incorrect and It would be wrong to apply a condition in the present context, because, in accordance
unnecessary
with the intention of the parties, an obligation rests on the seller to bring the thing
into being and then to make delivery, for example where S sells P a house which
he still has to build. Likewise, where S sells P the next calf to be born or the next
harvest to be reaped, the seller must do everything in his power to ensure that the
calf is born or the harvest reaped. If it is the duty of a contracting party to see
that a condition is fulfilled, it cannot be a genuine condition.
correct This construction must therefore be rejected, as it does not reflect the parties’ true
construction
intention. The consequences of this type of sale can be explained in another way.
First, the buyer cannot claim the thing immediately, because a party to the contract
can claim performance only after a reasonable time has elapsed – the buyer must
therefore allow the seller a reasonable time to prepare the thing. Secondly, in terms
of the agreement reached between the parties, the seller carries the risk that the
thing sold will not materialise. If the parties have not so agreed (so that the risk is
the buyer’s), one is not dealing with an emptio rei speratae, but with an emptio spei, which
brings us to the discussion of the emptio spei.

2.2.2.2 Emptio spei

buyer always liable One is dealing with an emptio spei when a thing which has not yet come into existence
for the price is sold and it is agreed that the buyer will be liable for the purchase price even if the
thing never materialises, for example where S sells P the following year’s harvest for
R10 000, irrespective of what the harvest yields.

8
 STUDY UNIT 2: Characteristics of a contract of sale

A thing may also be regarded as future goods for the purposes of the emptio spei where
the seller simply hopes to group together a number of existing things, for example
where S sells his potential fishing catch to P for R500, even if he catches nothing. In
our view, however, the genuine emptio spei must be distinguished from the case where
an existing thing is bought in the hope that it may contain valuable components,
for example a load of gravel in which the buyer hopes to find diamonds. This is not
the sale of something which will come into being in the future – in fact; there is
nothing at all unusual about such a sale.
sale of a hope Notwithstanding the literal name of this type of sale, namely the sale of a hope or
expectation, it is a figure of speech indicating that the buyer will have to pay up
whether the thing materialises or not. The obligation of the seller is clearly not to
deliver an empty promise, but a thing which he or she must, moreover, try to bring
into existence on the understanding that, should the thing not materialise, the buyer
will remain liable for the purchase price. That the seller is entitled to the purchase
price and is excused from his or her duty to deliver is not particularly unusual; in
fact, it is a familiar phenomenon in contracts of sale that are perfecta. See, in this
regard, study unit 9 on risk. However, this type of sale does not appear to occur
in commercial transactions any more.

2.2.3 The emptio ad mensuram (sale of a group of things at a price per

unit)
The seller’s undertaking to deliver a thing may also take the form of an undertaking
to deliver a group of things, for example a flock of sheep.

group of things In the emptio ad mensuram we find, in fact, that the seller undertakes to deliver a group
of things (or a particular mass of goods) at a price per unit. S can, for example, sell
a whole kiln to P at R400 per thousand bricks, or a determined heap of meal at
R100 per bag. Note that, in the case of the emptio ad mensuram, the price is not fixed,
but determinable. The thing is of course fixed: the heap of bricks or meal is
determined; it is just the exact quantity thereof that is uncertain.

land In regard to the sale of land, there is a type of sale that is closely related to the sale
ad mensuram: land is often sold for Rx per hectare, whereupon it is also stated that the
land covers Y hectares, or is approximately Y hectares in extent, and the price is given
as Rx multiplied by Y. Then the question is whether the parties intended to buy and
sell the land per quantitatem, that is, whether the given price is only an approximation
of the true price, which has to be calculated by multiplying the true number of
hectares by the amount Rx, or whether the intention was to sell the land ad corpus,
that is, as a whole for the price (Rx multiplied by Y, the approximate amount of
hectares), irrespective of any possible error in the number of hectares stated.

2.2.4 Sales in the alternative and generic sales

ascertainable thing The seller’s undertaking to deliver a thing need not be an undertaking to deliver a
specific thing. The thing can also be ascertainable. Apart from the emptio spei and the
emptio rei speratae, sales in the alternative and generic sales serve to illustrate this fact.

alternative sale An alternative sale is a sale where the seller has to deliver one of several specific
things. The alternative things must be specified individually and not as part of a
species. For example, S sells P one of his three horses, Brave Moment, Melody Song

LPL4801/29
 or Big Donald, for R10 000. If nobody is nominated in the contract to make the
selection, the debtor may and must select.

generic sale A generic sale is a sale where the seller has to deliver a thing described according
to its nature. For example, S sells P one sheep for R300 or 100 bags of mealies of
a particular grade. The genus can also be limited. For example, S sells P one sheep
of his flock for R300. If nobody is nominated in the contract to make the selection,
the debtor may and must select.

An ascertainable thing as the object of a contract of sale will receive special atten-
tion in the discussion of risk in contracts of sale in study unit 9. Consult the general
principles of the law of contract on alternative and generic obligations.

2.3 THE UNDERTAKING TO PAY A PRICE

2.3.1 The price as a sum of money

requirement for As has already been indicated, there can be a contract of sale only if one party un-
sale
dertakes to pay a price in exchange for the undertaking to deliver a thing. If there is
no price, there can be no contract of sale; this does not mean, however, that there
is no contract at all – a contract of donation, or some other type of contract, may
have been concluded. A contract of donation is an agreement whereby one person
undertakes to give another something out of liberality without receiving or stipulat-
ing any counter-performance. Furthermore, it is obvious that a contract of sale can
only exist if an actual price has been fixed. A simulated price will not do.

accepted unit of In South African law, a price and a contract of sale can exist only if the buyer’s per-
currency
formance is expressed in an accepted unit of currency, that is, in rand and cents, or
in a currency which can be converted into rand and cents.

performance of If the price was originally expressed in money and the parties later agree that the
price changed
buyer may render performance in another form, or even that the seller is released
from his or her obligation, this naturally cannot affect the nature of the original
juristic act. (In the last-mentioned case, the release would constitute a donation.)

2.3.2 Another performance together with the price

trade-in An interesting problem arises when the counter-performance does not consist only
in the payment of a sum of money. For example of the familiar “trade-in”’ contract,
in the sale of motor cars. Here, the counter-performance consists partly in money
and partly in the delivery of an article.

factors The intention of the parties is the decisive factor in determining the category of the
contract. If their intention cannot be determined, the principal part of the counter-
performance will be conclusive; if there is still uncertainty, the contract is regarded
as a contract of sale, since contracts of sale occur more frequently than contracts
of exchange. Exchange is an agreement in terms of which one party undertakes to
deliver a thing to another party in exchange for the counter-delivery of another thing.

10
 STUDY UNIT 2: Characteristics of a contract of sale

2.3.3 A contract of sale for a reasonable price

common law A sale “at a reasonable price” used to be regarded as unthinkable at common law,
because of the uncertainty of the price. English law acknowledges that a sale can take
arguments for place “at a reasonable price”, and this is probably why some of our judgments differ
validity
from the common law position. In other cases, however, the view is held that a sale
at a reasonable price is invalid. In Genac Properties JHB (Pty) Ltd v NBC Administrators
CC 1992 1 SA 566 (A), the Appellate Division remarked obiter that it is difficult to
determine according to what principle a sale for a reasonable price should be regarded
as invalid. Many writers are also in favour of the validity of such a sale. To aver that
a contract of sale at a reasonable price is impossible is unconvincing. After all, we
are concerned with the intention of the parties. The parties are undoubtedly agreed
that a price is being stipulated; the only question is the extent of the price. This
is determined with reference to a specific norm or criterion, namely an objectively
reasonable price. In the final analysis, it is a question of legal policy whether such a
contract is a valid contract of sale.

2.3.4 A contract of sale in which no price is stipulated

express or tacit For a contract to be classified as a sale, it is not necessary that the parties should
price
expressly agree to a specific price. A tacit undertaking to pay a certain price is just
as valid. In fact, the price agreed on expressly or tacitly need not even be a specific
sum of money – an express or tacit undertaking to pay an ascertainable sum of
money will do just as well.

no price stipulated In commerce, someone often “buys” something without asking the price. It is
uncertain whether a valid contract would come into being in this case. It is also
usual price
uncertain whether common law authority points to the existence of a naturale that a
reasonable price reasonable price must be paid in such a case. Another possibility is that the parties
have tacitly agreed on an ascertainable price. This possibility relates to the require-
ment that, for a contract to be binding, the parties’ respective performances should
be fixed, or at least ascertainable. Thus, if it can be said that the parties have tacitly
agreed on an ascertainable performance on the part of the party receiving the thing,
the contract will be above suspicion. Two possibilities arise here. Firstly, where the
seller is a merchant, it can be said that there is a tacit agreement that the seller’s usual
price has to be paid. Secondly, where the seller does not have a usual price, it can be
said that there is a tacit agreement that the market price has to be paid. The validity
of a tacit agreement on a reasonable price will depend on whether an express term
would be valid (see the discussion in the previous paragraph).

2.3.5 Determination of the price by a third party

Valid A contract to deliver a thing at a price determined by a third party is recognised in
ascertained or our law as a contract of ascertainable content (and therefore a valid contract), pro-
ascertainable
vided that the third party is ascertained or ascertainable (South African Forestry Co
Ltd v York Timbers Ltd 2005 3 SA 323 (SCA)). The third party is ascertained where
the parties had a specific third party or office-bearer in mind at the time of conclu-
sion of the contract. The third party is ascertainable if the parties have agreed on a
method of nominating the third party that results in the determination of the price
by the third party.

LPL4801/211
suspensive A contract to deliver a thing at a price determined by a third party qualifies as a
condition contract of sale subject to a suspensive condition, namely the determining of the
price by the third party.
problems Problems arise where one of the parties to the contract intentionally prevents the
fulfilment of the condition, for example by destroying the thing sold. There are
two possible solutions: the intentional conduct can be regarded either as fictitious
fulfilment of the condition or as a prevention of performance.

fictitious fulfilment In the case of the doctrine of fictitious fulfilment of the condition, the price is re-
garded as fixed, although it has not been fixed. A possible solution lies in the court
trying, to the best of its ability, to ascertain what the third party’s price would have
been. Admittedly, this would mean, in practice, that the parties are held to a price
which has been fixed in a way other than that envisaged by them – a consequence
which comes dangerously close to conflicting with the principle that the court may
never make a contract for the parties. But there is a primary difference here: the court
may not simply fix its own price; on the contrary, the court must try to determine
as closely as possible, in accordance with all the available evidence, what price the
third party would have fixed. There is nothing strange about the courts having to
express themselves on future facts (this is precisely what it does where, for example,
someone claims damages in delict for loss of future income). Secondly, one must
not lose sight of the fact that, as the name indicates the whole doctrine of fictitious
fulfilment of a condition rests on a fiction: the condition is deemed to have been
fulfilled even if it has not been fulfilled. If the matter is viewed thus, it no longer
seems so strange that the price which the court fixes on behalf of the third party is
deemed to be the price which has in fact been fixed by the third party.

prevention of An alternative solution to the problem, and one which would perhaps come closer
performance to the intention of the parties, would be to consider the party to a contract who
prevents the third party from determining the price as having committed a breach of
contract by preventing performance (just as a contracting party is guilty of preventing
performance when he sells his next crop, and then does nothing to realise the crop).
The innocent party’s remedy is the usual remedy available to him or her in such a
case, namely, damages, whether he or she rescinds the contract or not. However,
for purposes of calculating damages, the court will still have to fix a “price”. When
calculating the damages, the court has to determine the price the third party would
have stipulated, just as it has to establish how big the harvest would have been if the
seller had done his duty in the case of the harvest.

unreasonable price An interesting problem arises when the third party does fix a price, but it appears
fixed to be unreasonable. There are four possible solutions:
sale valid (1) The contract of sale is valid, notwithstanding the unfair price. Some authors
aver that, in the absence of mala fides (bad faith) and unlawfulness, the contract
of sale holds, the unfairness of the price notwithstanding. Our courts initially
tended to regard the third party in the same light as the “valuator”’ in English
law. In English law, the price specified by the third party, however unfair, is
binding in the absence of mala fides, fraud, error or collusion.
sale invalid (2) The contract of sale is invalid as the parties intended the price to be reason-
able (Pothier Treatise on the contract of sale par 23). There is not a lot of support
for this opinion.
court may deter- (3) The sale is valid, but the aggrieved party is not bound by the manifestly unjust
mine price determination of the price, as the court has a general power to correct such
determination. (Both the common law and modern writers, as well a number

12
 STUDY UNIT 2: Characteristics of a contract of sale

of court cases, support this view.) The reason for this view is stated in Dublin
v Diner 1964 1 SA 799 (D) 804:
  ... both parties presumably relied upon the ability, competence and integ-
rity of the third party nominated by them, much in the same way as they
might rely on an arbitrator. Where such third party determines a value
which is grotesquely inaccurate, it would be a harsh law which would
necessarily bind the oppressed party to payment of the price determined.
parties bound A further question is whether the parties are bound by the court’s determi-
nation. Only one decision by the High Court has expressed, in an obiter, the
view that both parties are bound by the court’s determination (Van Heerden v
Basson 1998 1 SA 715 (T) 719). There are modern writers such as Glover who
agree with this option (Glover Sale 85).
court may deter- (4) The sale is valid, but the aggrieved party is not bound by the manifestly unjust
mine price determination of the price. The court has a general power to correct such
determination, but the other party may elect whether or not to abide by the
non-aggrieved court’s determination. If he/she does not agree to the court’s determination,
party has election the agreement will fall away. The High Courts of three jurisdictions have
accepted this solution (Gillig v Sonnenberg 1953 4 SA 675 (T); Total South Africa
(Pty) Ltd v Bonaiti Developments (Pty) Ltd 1981 2 SA 263 (D); Bekker v RSA Factors
1983 4 SA 568 (T); Hurwitz v Table Bay Engineering (Pty) Ltd 1994 3 SA 449 (C)).

Unisa’s opinion This last mentioned solution seems to be correct, because it does not allow the courts
to create a new contract for the parties.

2.3.6 Determination of the price by one of the contracting parties

The parties may not validly entrust the determination of the price to one of the
contracting parties. Our common law authors are unanimous in stating that parties
cannot enter into such an agreement, or even into an agreement that the nominee of
one of the parties can determine the price. This is also the view of our courts. The
Supreme Court of Appeal has questioned the validity of this rule by remarking obiter
in NBS Boland Bank v One Berg River Drive CC v Absa Bank 1994 4 SA 928 (SCA) that
the rule is not only illogical but out of step with other modern legal systems. The
court suggested that a term conferring discretion on one of the parties to determine
the price is valid, unless an unfettered discretion is conferred on the party. The party
has to exercise its discretion reasonably and equitably.

2.3.7 Pricing and the CPA

There are a few sections of the CPA which are relevant to pricing. We refer you to
Study Guide 3 in this regard. Please note that what is said in Study Guide 3
will not be repeated here. We simply refer you to the relevant study unit for
your convenience. Please make sure that you incorporate the relevant mate-
rial relating to the legislation.

section 23 Look at the discussion of section 23 of the CPA in Study Guide 3, study unit 20,
regarding the way the price should be affixed to the object and the scenario where
more than one price is displayed for the goods.

sections 48 and 52 We also refer you here to study unit 22 in Study Guide 3. Please read through para-
graph 22.1 carefully, relating to sections 48 and 52 of the CPA. Please ensure that

LPL4801/2 13
 you understand that a new duty has been imposed on the seller, namely that the
seller may not charge an unfair purchase price for the goods provided. Please ensure
that you know the factors to be used to determine whether a price is reasonable or
not. You also need to know what the buyer’s remedies are if an unreasonable price
has, in fact, been charged.

2.3.8 Pricing and the NCA

One aspect that deserves a brief mention is section 100(2) of the NCA (which is not
discussed in Study Guide 3). In terms of the latter subsection, the credit provider
may not charge a higher baseline price for any goods than the price charged by the
credit provider for the same goods in a cash transaction.

ACTIVITY
1 Sibongile has some Cape Yellowwood furniture timber. She concludes a
contract with John to manufacture a lounge suite for her from her timber for
R10 000. Have the parties concluded a contract of sale?
2 Reread the factual scenario at the beginning of this study unit on page 4.
Advise Sibongile fully.
3 Thandi buys a new car from XYZ Garage for R80 000. She trades in her old
car and the garage places a value of R40 000 on her old car. Have the parties
concluded a contract of sale?
4 Why do we distinguish between the different types of contracts?

2 FEEDBACK
(1) No. The parties have concluded a locatio conductio operis, because John
will use Sibongile’s material to manufacture the lounge suite.
(2) The parties have concluded a sale, because John uses his own material to
manufacture the lounge suite. Furthermore, this is an emptio rei speratae,
because the parties intend that Sibongile will only have to pay the price when
the lounge suite comes into existence and is delivered. John will therefore
not be able to claim the purchase price from Sibongile.
You must be able to identify the different types of sales, because this could
be very important in the application of the risk rule later. With certain types
of sales, the price has not yet been determined or the thing has not yet been
ascertained until further steps have been taken. The thing and the price must
be ascertained for risk to pass to the buyer. This will influence the passing
of the risk to the purchaser. See the discussion of risk in study unit 9. In
this question it is also possible that John manufactures lounge suites in the
ordinary course of his business, which could mean that the CPA might ap-
ply to this contract of sale (see Study Guide 3, study unit 18, at paragraph
18.4.1). If it does, the impact of the risk rule should be considered (see Study
Guide 3, study unit 19, paragraph 19.4 and also study unit 9 below, in this
study guide).

(3) We will first have to determine what the intention of the parties was before
the other steps become relevant. The parties indicated that Thandi had
bought a new car from XYZ Garage. This is sufficient indication that the
parties wished to conclude a sale, and that there is no simulation of a sale.
No other facts are given with regard to the parties’ intention in this scenario.

14
 STUDY UNIT 2: Characteristics of a contract of sale

(4) We distinguish between the different types of contract because the legal
consequences and requirements in respect of the different types of contract
may differ. For example, certain contracts of sale have to comply with certain
formalities, and the naturalia of a sale differ from those of a lease.

LPL4801/2 15
 3 STUDY UNIT 3
3 Formalities required for the conclusion of a
binding contract of sale

In a verbal sale, Chris sells his house to Ann for R500 000.

OVERVIEW
The Alienation of Land Act 68 of 1981 (“the ALA”) is the most important piece
of legislation in this regard. We refer you here to Study Guide 3, study unit 1,
which you must study in detail. Please ensure that you are able to answer all the
questions relating thereto.

It is important for you to understand that, although there are no formalities

prescribed in terms of the common law for a valid sale agreement, legisla-
tion has been enacted in terms of which certain sale agreements have to be
in writing.

Generally speaking, a sale agreement relating to land has to be in writing. If it is not

in writing, and not signed, the alienation (which can also be a sale) is void, unless
both parties have performed in full, in which case the agreement of sale will become
valid retrospectively. If it is void, the ALA stipulates specific remedies for both the
seller and the purchaser.

You will also be introduced to the cooling-off right established in the ALA and you
need to understand and apply this right.

When land is bought on credit, the ALA has set further requirements and procedures.
Please study this aspect thoroughly in Study Guide 3, study unit 2.

16
 4 STUDY UNIT 4
4 The seller’s duties: the duty of custody

Anna sells her car to Pieter for R30 000 on 1 April. They agree that she will deliver
the car to him at his home on 5 April. One morning, before delivery, she decides
to use this car to go and buy bread at the café. She fails to stop at a robot and the
car is damaged in an accident. The third party failed to keep a proper look-out. The
cost of having the car repaired is R10 000. Pieter still wants the car, but he wants to
know from whom he can claim his loss.

OVERVIEW
In the absence of express or tacit agreement, the law imposes a number of obligations
on the seller as naturalia. These naturalia are as follows: the seller’s duty of custody,
the seller’s guarantee against latent defects, and the seller’s guarantee against evic-
tion. In this study unit, the first duty will be discussed.

CONTENTS
4.1 THE SELLER’S OBLIGATION TO TAKE CARE OF THE THING
UNTIL IT IS HANDED OVER
4.2 THE DEGREE OF CARE
4.3 THE PURCHASER’S REMEDIES
4.4 THE INFLUENCE OF THE CPA ON THE SELLER’S DUTY OF CARE

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• explain what the duty of custody entails
•• explain the standard of care which the seller must exercise
•• explain the effect of mora creditoris of the purchaser on the duty of care
•• set out the remedies of the purchaser
•• apply the rules discussed in this study unit to practical problems
•• explain the possible influence of the CPA on the seller’s duty of care

4.1 THE SELLER’S OBLIGATION TO TAKE CARE OF THE THING

UNTIL IT IS HANDED OVER
period During the period after the contract has been entered into, but before delivery of
the thing has taken place, the seller is obliged to look after the thing. As you will
see in study unit 9, the purchaser carries the risk of accidental damage to, or even
of destruction of, the thing sold after the sale is perfect (perfecta). The seller is liable,
however, if the damage or destruction of the article is his or her fault.

LPL4801/217
 4.2 THE DEGREE OF CARE
reasonable person The degree of care required of the seller is that which a reasonable person would
bestow with regard to the custody of the thing. It is quite possible, however, that it
may be agreed that the seller should bestow less or more care on the article. In any
case, the onus of proving that he or she has in fact bestowed the required care on
the article rests on the seller.

mora creditoris/ If, however, there is mora (a delay) on the part of the purchaser as regards accept-
debitoris ance of delivery (mora creditoris – delay of the creditor in accepting performance), the
seller will be liable only if the thing is damaged or destroyed intentionally or by his
or her gross negligence (culpa lata). If the seller is in mora as regards delivery of the
thing (mora debitoris – delay on the part of the debtor to perform), he or she is liable
in all cases, except where the thing would have been destroyed even if it had been
delivered on time.

4.3 THE PURCHASER’S REMEDIES

cancellation The purchaser may cancel the contract if, as a result of the seller’s neglect of his or
her duty of custody, the thing which is tendered differs materially from the thing
damages which was sold. The purchaser may also claim damages for his or her full “id quod
interest” (loss).

third party Where the damage or destruction of the thing can be imputed to a third person, the
seller incurs no liability. If the risk is the buyer’s, the seller must cede to the purchaser
any claim which he or she may have against such third party.

4.4 THE INFLUENCE OF THE CPA ON THE SELLER’S DUTY OF

CARE
You are referred to Study Guide 3, study unit 19, paragraph 19.4 and also to study
unit 9 below in this study guide. Where a sale agreement is subject to the CPA, risk
will only pass to the purchaser upon the latter’s acceptance of delivery. Therefore, in
these instances, the seller will carry the full risk of the goods until delivery, instead
of only having a duty of custody. It is only the acceptance of delivery of the goods
by the buyer that will result in the passing of risk in terms of the CPA.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 17. Advise
Pieter. Assume that Pieter was carrying the risk (the sale was perfecta) when the
car was damaged.

3 FEEDBACK
The damage to the car was caused by negligence on the part of Anna and the
third party. Anna is still the owner of the car, because it has not yet been delivered
to Pieter. Pieter can therefore claim the part of the damage caused by Anna. The
basis of this claim is breach of contract (positive malperformance), because she
failed to look after the car as a reasonable person would have. Pieter cannot claim
from Anna the loss caused by the third party. However, he can claim cession of
the claim that Anna has against the third party. The basis of his claim against the

18
 STUDY UNIT 4: The seller’s duties: the duty of custody

third party is delictual. It is likely that the CPA does not apply to this transaction,
as the sale does not appear to be part of the seller’s ordinary course of business.
It seems to be a sale between two private persons, as a once-off transaction (see
Study Guide 3, study unit 18, at paragraph 18.4.1).

LPL4801/219
 5 STUDY UNIT 5
5 The seller’s duties: the duty to deliver

Johannes sells his plot to Moghele for R500 000. Before transfer of the plot to
Moghele’s name, she takes occupation of the plot and finds to her horror that 2 000
squatters are living on the plot.

OVERVIEW
This duty of the seller is an essentiale. The seller must make the thing sold available
to the purchaser and must give the buyer undisturbed possession of the thing sold.

CONTENTS
5.1 THE NATURE OF THE SELLER’S OBLIGATION
5.2 SUBJECT MATTER OF THE OBLIGATION
5.3 TO WHOM MUST DELIVERY BE GIVEN?
5.4 SPECIAL DELIVERY OBLIGATIONS
5.5 ONUS
5.6 THE INFLUENCE OF THE CPA ON THE SELLER’S DUTY TO
DELIVER

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• explain the seller’s obligation where movables are sold
•• explain the seller’s obligation where immovable property is sold
•• explain what “undisturbed possession”’ means
•• understand that the mere existence of a servitude does not establish disturbed
possession
•• distinguish between the liability of the seller on the ground of failure to give
undisturbed possession and the liability of the seller on the ground of eviction
•• explain what the seller must deliver
•• state to whom the seller must deliver
•• understand that the seller bears the onus of proof
•• apply the rules discussed here to practical problems
•• understand and explain the influence of the CPA on the seller’s duty to deliver

5.1 THE NATURE OF THE SELLER’S OBLIGATION

movable property: The act of delivery need not necessarily take a positive form. In general, it may be
place at disposal
said that the seller of movable property need not seek out the buyer, but that he or
she must place the thing at the disposal of the buyer. However, he or she must ensure
that the thing is ready for delivery, for example where individualisation, weighing,
measuring or counting has to be done, the seller must see to it that it is attended to.

20
 STUDY UNIT 5: The seller’s duties: the duty to deliver

Thus there is also a duty on the seller to give the buyer notice, if necessary, in order
to obtain his or her co-operation. The buyer is then obliged to remove the thing sold.

immovable On the one hand, the duty to deliver immovable property implies that the seller must
property: admit to admit the buyer to possession of the thing, and, on the other hand, that the seller
possession
must give transfer to the buyer (i.e. the seller must bring about registration in the
transfer name of the buyer at the deeds registry). The duty to give transfer means that the
seller must, at his or her own expense, arrange for the registration of the property
in the name of the buyer and, if there is any bond on the property, he or she must
see that this is cancelled in order to effect a transfer of the property. In practice, the
parties often expressly agree to the contrary, namely, that the purchaser will pay for
the cost of the transfer. (Transfer duty must be paid by the purchaser in terms of
the relevant legislation.)
undisturbed The duty of the seller of a movable or immovable thing to deliver the thing is in-
possession
tended to achieve a specific result. The act of delivery must be of such a nature that
the buyer will obtain vacua possessio (undisturbed possession) of the thing by taking
delivery of it. Thus the seller of immovable property must remove from the property
sold all movables which are not included in the sale agreement. For the same reason,
the seller must remove both unlawful and lawful possessors. This is stated as fol-
lows in the decision of York & Co (Pty) Ltd v Jones NO (1) 1962 1 SA 65 (SR) at 67:
When the duty to give possession is to be considered, it appears to me that
it is entirely irrelevant whether the so-called trespassers are there under col-
our of right or not. The mere fact of their physical presence, if it results in a
deprivation of the purchaser’s right to secure the enjoyment in possession of
his purchase is enough to justify the purchaser in claiming that the seller has
failed to carry out his obligation.

servitude The question now is, does the mere fact that a servitude is registered against the title
deed of the thing sold mean that the seller cannot give undisturbed possession? In
other words, does the mere fact that there is a person other than the seller who has
a right in the thing sold mean that the seller cannot give undisturbed possession?
If this were the case, it would mean that the bona fide seller (seller in good faith) of
a res aliena (a thing which belongs to someone else) could never give undisturbed
possession – and this is simply not in accordance with our law.

Mostert’s view Mostert (Uitwinning by die koopkontrak 404–405) submits that the term “undisturbed
dicta in cases
possession” means that, at the time when transfer of possession takes place,
there must be no interference with the physical possession of the buyer, and that
the existence of a servitude (and, of course, of a different burden like a mortgage)
does not necessarily mean that there is interference with the buyer’s physical pos-
session. Such interference takes place only if the holder of the right is exercising
his or her right at the time when possession is transferred to the buyer. This view
appears to be correct and we agree with Mostert that those dicta in some cases (e.g.
Theron and Du Plessis v Schoombie 14 SC 192, Lourenson v Swart 1928 CPD 402, Abdullah
v Long 1931 CPD 305, Van der Westhuizen v Le Roux and Le Roux 1947 3 SA 385 (C),
and Overdale Estates (Pty) Ltd v Harvey Greenacre & Co Ltd 1962 3 SA 767 (D)) which
create the impression that the mere existence of a servitude or other burden means
that the seller cannot give undisturbed possession are incorrect.

eviction Undisturbed possession is therefore lacking when there is a “defect” (disturbance)

distinguished in the physical possession obtained by the buyer at the time of delivery. Eviction, on

LPL4801/221
 the other hand, can only occur if there is a defect in the title which is transferred
to the buyer. Eviction is fully discussed in study unit 7.

5.2 SUBJECT MATTER OF THE OBLIGATION

specific thing The thing which must constitute the object of the act of delivery is, of course, the
thing which has been sold. No other thing can serve as a substitute unless, of course,
undefined thing
the purchaser agrees. If the thing sold is not a specific article, but an undefined article
(but one which is ascertainable), the seller must abide by the arrangements made
in the agreement. Unfortunately, it is sometimes difficult to determine whether a
specific or an undefined thing has been sold. This happens when the object of the
contract of sale is merely indicated in terms of its quantity. Often, too, qualifying
words are added, such as “approximately two tons of sugar”, “about 100 bags of
wheat” or “more or less 20 tons of iron”. The courts have indicated that there are
two possibilities:
(1) When such a description (with or without the qualifying words) is encountered
and it is clear from the surrounding circumstances that it is merely descriptive
of a specific object, we are dealing with the sale of a specific thing (a sale ad
corpus). In such a case, our courts have held that the actual amount is immate-
rial – provided that the seller was bona fide (acting in good faith). According to
case law, this affords the purchaser a remedy only if the seller has been guilty
of an intentional misrepresentation. This should also be the case where the
seller has made a negligent misrepresentation.
(2) When no deduction can be made from the surrounding circumstances that
the description is merely descriptive of a specific object, two further pos-
sibilities exist:
(a) If no qualifying words (such as “approximately”’) are used in indicating
the amount, the determination of the amount must be regarded as a
guarantee and the seller must deliver the amount indicated.
(b) If qualifying words are used, there can be a minor deviation from the
stipulated amount.

condition The thing must, furthermore, be delivered in the condition in which it was when
the contract was concluded.

accessories and The seller must also deliver all accessories and attachments together with the thing
attachments sold, except where they have been excluded by agreement. In the case of immovable
property; any objects which have lost their movable character by attachment must be
regarded as part of the thing sold. Even objects which have not been rendered im-
movable by attachment, but “which are intended for the permanent use of the house,
such as the covering of a well, bolts, hooks and keys must be delivered together with
the principal thing”. Attachments to movables naturally remain movables, but here,
too, it is quite possible that such attachments may be related to the principal object
in such a way that they must be regarded as one unit. Examples are the container
in which a liquid is sold, the frame of a portrait and the keys of a car. The precise
nature of an accessory varies according to the nature of the thing and the intention
of the parties and is thus essentially a question of fact.

fruits and profits Apart from this, the seller must transfer to the purchaser all the fruits and profits
(the commodum rei venditae) produced by the thing after the sale has become perfect
(perfecta). Fruits include civil fruits (e.g. rent) as well as natural fruits separated after
the contract of sale has become perfect (perfecta). This rule is based on the principle

22
 STUDY UNIT 5: The seller’s duties: the duty to deliver

that, since the risk attaches to the purchaser after the sale is perfecta, the profit must
follow the prejudice.

5.3 TO WHOM MUST DELIVERY BE GIVEN?

buyer or The thing need not necessarily be delivered to the purchaser him- or herself, but
representative
may also be delivered to his or her representative, in which case delivery to the agent
will be equated with delivery to the purchaser him- or herself.

transport Once the thing is in the hands of the purchaser or his or her agent, the seller’s duty
to deliver will have been discharged. If the purchaser wishes to transport the thing
elsewhere and employs a carrier for this purpose, the carrier is his or her mandatory
or even his or her agent. The same will apply where provision has already been made
in the agreement that the thing will be transported after it has been made available:
the carrier will, as a general rule, be acting as the mandatory, messenger or even, in
certain circumstances, as the agent of the purchaser. In such cases, the seller can
be expected to do no more than deliver to the carrier. However, where the seller,
instead of making the thing available, assumes responsibility for delivering the thing
elsewhere, any carrier whom he or she employs for that purpose is naturally his or
her mandatory, or even his or her agent, and therefore the seller will not be released
merely because he or she has made the thing available to the carrier. In such a case,
the seller’s duty of custody naturally continues until delivery is finally accomplished.
Whether the seller assumes responsibility for delivering the thing elsewhere is a
question of fact which depends on the intention of the parties.

5.4 SPECIAL DELIVERY OBLIGATIONS

Where and when delivery must take place is determined by the general principles
governing fulfilment. Where the seller has undertaken special delivery obligations,
he or she must deliver according to his or her undertaking. For example, in FOR
(“free on rail”) sales, the contract may state that delivery is free at a named station,
or at the seller’s station, or at the buyer’s station. Where the station is named, or
the station in question is the seller’s station, it is the duty of the seller to place the
goods on railway trucks, and it seems that the buyer has to contract with the rail-
way and to pay for the rail costs. The seller has to pay for the transport costs to the
purchaser’s station. FOB (“free on board”) sales are similar to FOR sales. In a CIF
(“cost, insurance, freight”) agreement, the seller undertakes to ship and insure the
goods and to conclude valid contracts of carriage and insurance, but the buyer pays
for the freight and insurance.

5.5 ONUS
onus The seller who has transferred possession of the thing to the purchaser in accordance
with all these requirements has discharged his or her obligation to provide vacua pos-
sessio of the thing. The onus rests on the seller to prove that he or she has complied
with these requirements.

breach Failure to deliver is a breach of contract (either mora debitoris or positive malper-
formance) and the buyer has the ordinary remedies for breach of contract. The
action is the actio empti.

LPL4801/2 23
 5.6 THE INFLUENCE OF THE CPA ON THE SELLER’S DUTY TO
DELIVER
Section 19 of the CPA reinforces the common law duty of the seller to deliver. Please
refer to Study Guide 3, study unit 19 (par 19.4). Please also refer to study unit 19 (par
19.5), which deals with the consumer’s right to return goods for a full refund when
the goods that are delivered are not satisfactory.

ACTIVITY
1 Reread the factual scenario at the beginning of this study unit on page 20.
Advise Moghele in full.
2 Wolfgang buys a house from Annemarie. Annemarie knows that Wolfgang
intends to build a block of flats on the premises. After transfer of the property
has been effected, Wolfgang discovers that there is a government order in
terms of which a part of the house has been declared a national monument,
so that the house cannot be demolished. This fact is not reflected in the deed
of transfer. You may assume that a valid contract of sale was concluded. Does
Wolfgang receive undisturbed possession?

4 FEEDBACK
(1) The seller (Johannes) has failed to provide the purchaser (Moghele) with
undisturbed possession. Please indicate why this is the case and what the
possible remedies are. Also consider whether you think the CPA is applica-
ble or not. If you are uncertain, go back to Study Guide 3, study unit 18, to
refresh your memory regarding which sale agreements the CPA applies to.
(2) This problem deals with the question whether the mere existence of servitudes
or other burden means that the seller cannot give undisturbed possession
to the purchaser. Conflicting views are held on this issue. Our view is that
the mere existence of this declaration means that undisturbed possession
can be given, as the government did not exercise its powers flowing from
the declaration when Wolfgang took occupation. Annemarie could possibly
be liable for misrepresentation (see study unit 6), latent defects (see study
unit 6) or even eviction (see study unit 7). You will get more clarity in this
regard in the following study units. Also consider whether the CPA applies
to this sale agreement.

24
 6 STUDY UNIT 6
6 The seller’s duties: the seller’s “guarantee”
against latent defects in the thing sold

Pieter buys an insecticide from the Farmer’s Cooperative to spray his maize for maize
stalk borer. He follows the instructions on the insecticide and sprays his maize with
the insecticide. The insecticide kills not only the maize borer but also the maize, re-
sulting in the failure of his entire crop. Pieter is now urgently in need of legal advice.

OVERVIEW
There are a number of bases for liability for latent defects. Most of these have been
discussed in the general principles of the law of contract, but we will refresh your
memory by discussing them again. The aedilitian liability for latent defects is the
third duty imposed by law on the seller, which is also closely related to misrepre-
sentation and a dictum et promissum. The liability of the manufacturer and dealer for
consequential damages will also be discussed. The influence of the NCA and the
CPA with regard to the inclusion of the voetstoots clause will be discussed. You will
also be reminded of the very important additions and amendments the CPA has
brought about to this specific aspect of the law of sale.

CONTENTS
6.1 INTRODUCTION
6.2 LIABILITY ON THE GROUND OF BREACH OF WARRANTY, THAT
IS, BREACH OF CONTRACT
6.3 LIABILITY FOR MISREPRESENTATION AT THE TIME THE CON-
TRACT WAS ENTERED INTO
6.3.1 The influence of the CPA on the common law of misrepresentation
6.4 LIABILITY FOR DICTA ET PROMISSA
6.4.1 The influence of the CPA on the common law regarding dicta et
promissa
6.5 AEDILITIAN LIABILITY FOR LATENT DEFECTS
6.5.1 Historical development
6.5.2 Requirements for liability
6.5.2.1 There must be a defect in the article
6.5.2.2 The defect must not be insignificant
6.5.2.3 The purchaser must not have known of the defect
6.5.2.4 The defect must be latent
6.5.2.5 The defect must have existed at the time the contract was
entered into
6.5.3 The scope of liability for latent defects
6.5.4 Cases where the aedilitian remedies are not available to the purchaser
6.5.4.1 Waiver at the time the contract was entered into
6.5.4.1.1 The NCA on the admissibility of the voetstoots
clause

LPL4801/2 25
 6.5.4.1.2 The CPA on the admissibility of the voetstoots
clause
6.5.4.2 Waiver of rights after the contract has been entered into
6.5.5 Theoretical explanation of the aedilitian liability for latent defects
6.5.6 The influence of the CPA on the common law warranty against latent
defects and the aedilitian remedies
6.6 THE LIABILITY OF MANUFACTURERS AND DEALERS FOR CON-
SEQUENTIAL DAMAGES CAUSED BY LATENT DEFECTS
6.6.1 Liability of the manufacturer
6.6.2 Liability of the dealer
6.6.3 Strict liability imposed by the CPA

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• set out the grounds for which the actio empti is the indicated remedy
•• explain the seller’s liability for breaching an express or tacit guarantee
•• set out the seller’s liability for misrepresentation and the purchaser’s remedies
and to explain the relevant statutory provision
•• set out the seller’s liability for dicta et promissa and the buyer’s remedies and to
explain the relevant statutory provision
•• explain whether the buyer can be held liable for a dicta et promissa in the case of
a trade-in
•• set out the requirements for liability for latent defects
•• explain what the effect is if an expert examines the thing sold
•• set out what may be claimed with the aedilitian remedies
•• explain whether the buyer can be held liable for latent defects in the case of a
trade-in
•• set out the instances where the seller is not liable for latent defects
•• explain the possible basis of the seller’s liability for latent defects
•• explain the influence of the CPA and the NCA on the common law remedies
based on defects
•• explain the liability of the manufacturer and dealer for consequential loss caused
by latent defects
•• explain the major expansion of the liability of the manufacturer and the dealer
(among other parties) for defects in goods in terms of the CPA
•• explain how the different liabilities of the seller may overlap, and how the parties
might rely on possible remedies in terms of the common law and/or statutory law
•• discuss the cases to the extent that they are discussed in the study guide
•• apply the rules discussed here and the relevant cases, to practical problems

6.1 INTRODUCTION
general liability If one were to judge from the general principles of the law of contract, one would
think that a seller who delivers a thing with the same characteristics it had when the
contract was entered into would have no further liability for defects in the article,
unless he or she was guilty of a misrepresentation, or unless he or she had expressly
or tacitly guaranteed the presence or absence of certain characteristics. Such liability
(i.e. for misrepresentation and breach of contract) may be referred to as the general
liability of the seller.

26
 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

particular liability In the case of contracts of sale, however, in certain circumstances sellers are held
liable for defects in the thing sold, even if they have given no express or tacit guar-
antee as regards such defects, and even if they were entirely unaware of the defects.
This form of liability will be referred to as the seller’s particular liability for latent
defects in the thing. Where a sale agreement is subject to the CPA, the Act offers
further protection to buyers when it comes to defects in goods. Where relevant, this
additional protection will also be discussed.

To give you a better grasp of the whole field, we shall first give a brief résumé of
the seller’s general liability as regards the characteristics of the article. Then we will
discuss the seller’s liability for latent defects in the thing sold.

6.2 LIABILITY ON THE GROUND OF BREACH OF WARRANTY,

THAT IS, BREACH OF CONTRACT
actio empti A guarantee is an express or a tacit term in a contract that can guarantee a certain
quality of the thing sold. Upon the breach of such a guarantee, the seller may be
sued in terms of the actio empti (or actio ex empto), which is the general action afforded
for breach of contract. It should be noted, however, that, although the actio empti was
initially a purely contractual action, these days mere breach of contract is not the only
ground in terms of which the actio empti may be instituted. Traditionally, the South
African courts have held that the actio empti may also be used by a buyer to claim
damages from a seller who misrepresents the characteristics of the thing sold. In this
case, it is not breach of contract, but delict, which is the ground for the actio empti.

Our courts have held further that the actio empti may also be used to claim damages
from manufacturers or dealers whose products are defective. However, it is not certain
whether the liability is based on the breach of an ex lege warranty (warranty implied
by law) or misrepresentation. Be that as it may, the actio empti is also employed here,
irrespective of whether the ground for its employment is contractual or delictual.
This aspect is discussed below in paragraph 6.6.

Even where the CPA applies to a certain transaction, the buyer will still be able to
rely on the common law remedies. Where the statutory remedies hold a monetary
and litigious advantage for the buyer, it would be ill-advised for the buyer to rely on
his or her common law remedies. The CPA does not replace the common law, but
must be read and applied in conjunction with the common law. There are certain
instances, however, where the common law is amended, but these will be clearly
highlighted in the course of this study guide.

express or tacit As indicated above, the seller may be sued in terms of the actio empti if his or her
guarantee performance is defective. The seller’s performance would be defective if he or she
delivered a defective article after guaranteeing (expressly or tacitly) the absence of
such defects, or delivered a thing without the commendable characteristics which
he or she has guaranteed (Minister van Landbou-Tegniese Dienste v Scholtz 1971 3 SA 188
(A)). In the last-mentioned case, a breeder of bulls sold a bull to a purchaser for stud
purposes. However, the bull was not fit for this use. This defect in the bull obviously
constituted a latent defect. However, in this case, the purchaser’s claim on the basis
of the aedilitian remedies had already prescribed, hence the purchaser considered
other remedies, namely, a possible claim for breach of contract.

The noncompliance with the terms of the agreement as regards the characteristics of
the thing is, of course, also an ordinary breach of contract (positive malperformance).

LPL4801/227
 In such a case, the purchaser has the normal remedies as regards damages and, where
appropriate, rescission. In this case the court decided that the suitability of a stud
bull for stud purposes could be seen as a tacit guarantee in the contract and that the
claim for breach of contract had not yet prescribed.
It makes no difference whether the guarantee has been given expressly or tacitly.
You will note in the paragraphs below that it will make a difference in the quantum
of the claim whether the purchaser relies on a latent defect or a warranty.

6.3 LIABILITY FOR MISREPRESENTATION AT THE TIME THE

CONTRACT WAS ENTERED INTO
commissio and The seller is liable for misrepresentations on the ground of delict. The misrepresen-
omissio tation may take the form of a false statement about the presence of commendable
qualities in the article, or the absence of bad ones. Here, the wrongful act is clearly
a commissio. The misrepresentation may also take the form of an omissio (omission),
in that there may have been a failure to remove an existing misconception about
the absence of bad characteristics in the instance where a legal duty rested on the
seller to remove the purchaser’s misconception. As is the case elsewhere in the law
of delict, the seller commits a wrongful omission only if he or she was under a duty
to act in accordance with generally accepted community standards. In positive law,
such a “duty to speak” rests upon the seller who is aware of any latent defects in the
article sold (Glaston House (Pty) Ltd v Inag (Pty) Ltd 1977 2 SA 846 (A)).

The seller is also liable for misrepresentation if he or she deliberately conceals poor
qualities that, although not necessarily latent defects, nevertheless have this effect.
This will lead to a scenario where the parties do not contract on an equal footing
(refer to Dibley v Furter 1951 4 SA 73 (C)). It cannot be denied that it can be difficult
to know where to draw the line. See, for example, Von Mellenthin v MacDonald 1969
(3) SA 471 (T), where the court found that there was no legal duty on the seller to
inform the buyer about defects that commonly occur in horses, even though the
seller knew about such defects. In other cases the seller’s silence was indeed regarded
as a misrepresentation that may lead to the usual delictual remedies (refer to Glaston
House and Dibley). In Glaston House the court decided that the failure to inform the
developer (purchaser) that a portion of the building that the purchaser wanted
to demolish had been declared a national monument amounted to a fraudulent
misrepresentation. The court decided that a duty had rested on the seller to inform
the purchaser about the pediment that had been declared a national monument.
The seller had known that it was the intention of the purchaser to demolish the
building, but that he needed to obtain the permission of the authorities before
doing so. Furthermore, the presence of such an impediment was regarded by the
court as a latent defect. In Dibley the court decided that a failure on the seller’s part
to inform the purchaser about a graveyard on the farm did amount to a fraudulent
misrepresentation, but that the presence of the graveyard did not constitute a latent
defect (see further discussion below).

delict Unlike breach of warranty, misrepresentation does not deal with noncompliance with
the provisions of the contract itself, but with untrue representations that precede
the conclusion of the contract and cause a party to the contract (the purchaser in
this case) either to enter into the contract at all, or to enter into it with the existing
remedies: rescis-
content. A misrepresentation is thus a delict.
sion damages
A misrepresentation can be either intentional or negligent. The decision in Bayer
dolus dans
South Africa (Pty) Ltd v Frost 1991 4 SA 559 (A) placed the remedies for intentional
dolus incidens and negligent misrepresentation on the same footing. It is generally accepted that
the misled party has the choice either of rescinding the contract on the ground of

28
 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

such misrepresentation or of maintaining it, and, in any event, that he or she is also
entitled to damages calculated according to his or her negative interest, that is, the
damages must restore him or her to the position in which he or she would have been
had the misrepresentation not taken place.

Where the contract is cancelled, the innocent party’s damages will usually be the
fruitless expenditure which he or she may have incurred in connection with the con-
clusion and cancellation of the contract. Where the contract is upheld, the innocent
party’s damages will be assessed in one of two possible ways. First, if it appears that
the misled party would not have entered into the contract at all had it not been for
the misrepresentation, the innocent party has to be placed in the financial position
he or she would have been in had there been no contract at all. This is traditionally
called dolus dans causam contractui (dolus dans in short). His or her loss is usually deter-
mined by deducting the value of the performance rendered by the misrepresentor
from that rendered by the innocent party, and by adding any consequential loss to
the difference. Secondly, when it appears that, in the absence of the misrepresen-
tation, the innocent party would still have contracted, but on different terms, the
innocent party must be placed in the financial position he or she would have been
in had he or she concluded a contract on those different terms. This is traditionally
known as dolus incidens in contractum (dolus incidens in short). The innocent party’s loss
is determined by deducting the value of the performance that he or she would have
been prepared to render had there been no misrepresentation from the performance
that the innocent party actually rendered, and adding to that any consequential loss
that the innocent party may have suffered.

In Dibley, where the contract had been cancelled, the court ordered restitution and
damages. The damages was computed by adding up the wasted transfer costs, the
costs relating to the bond cancellation, the moving costs as well as expenses relat-
ing to necessary and useful improvements. In Glaston House, the court allowed for
damages in the amount of the cost the purchaser incurred in removing the pediment
and reinstalling it later.

6.3.1 The influence of the CPA on the common law of misrepresentation

Please refer to Study Guide 3, paragraph 21.2, and please study this in detail. You will
note that where the CPA applies, the common law of misrepresentation is codified
to a certain extent. Please also take a careful look at the remedies provided for in
the CPA and how these overlap with the remedies in terms of the common law, as
discussed in paragraph 6.3 above, with reference to section 52 (3) of the CPA (see
Study Guide 3, study unit 21, paragraph 21.2, under the margin heading “remedies”).
In short, section 52(3) of the CPA provides that the court may declare the agreement
(in whole or in part) to constitute prohibited conduct and make any further order the
court considers just and reasonable, taking into account the circumstances of each
case. This may include an order to restore money to the consumer, to com-
pensate the consumer for losses or expenses related to the transaction or the
court proceedings, or requiring the supplier to cease or alter any practice or
document to avoid a repetition of the supplier’s conduct.

6.4 LIABILITY FOR DICTA ET PROMISSA

definition In Phame (Pty) Ltd v Paizes 1973 3 SA 397 (A) the Appellate Division held that the
aedilitian actions (the actio quanti minoris and the actio redhibitoria) are available to
the buyer if the seller made a false, material statement to the buyer during the
negotiations bearing on the quality of the thing sold and going beyond mere praise
and commendation. In this case the seller sold his shares in a company, where the

LPL4801/229
 only asset of the company was immovable property that generated a rental income.
During the negotiation phase the seller made a false statement to the effect that the
municipal costs were a certain amount, which proved to be much more later on. The
court decided that it boiled down to a material false statement relating to the quality
of the goods, and allowed for a reduction in the purchase price. The court found that
a dictum et promissum has its independent existence in the South African law and that
the purchaser does not have to prove or plead a tacit warranty or a misrepresenta-
tion, based on fault. The facts of the Phame case show that “quality” should not be
given a restrictive meaning. The false statement had had an impact on the value of
the shares and, therefore, also on the quality of the shares. The requirement of
“materiality” means the dictum et promissum must have influenced the party
to conclude the contract. Thus, where a dictum et promissum is made, a purchaser can
either claim that the contract be set aside in terms of the actio redhibitoria, or claim a
reduction in price under the actio quanti minoris. Section 6.5.3 below deals with the
relief that can be claimed in terms of aedilitian remedies.

wider application A culpable misrepresentation can also amount to a dictum et promissum if the state-
ment complies with the definition of a dictum et promissum. The buyer will then also
have other remedies available, as explained in the previous paragraph (the remedies
for a misrepresentation).
trade-in The courts are divided on the question whether the aedilition actions are also avail-
able to the seller for dicta et promissa made by the purchaser in regard to the thing
traded in as part of the purchase price, where there appears to be a latent defect in
the traded-in thing. For a full discussion, refer to paragraph 6.5.3 below.

6.4.1 The influence of the CPA on the common law regarding dicta et
promissa
Section 41 of the CPA is also applicable in this instance. Please reread paragraph 6.3.1
above and Study Guide 3, paragraph 21.2. You will note, by looking at the remedies,
that the CPA offers wider protection to the buyer than the aedilitian remedies.

6.5 AEDILITIAN LIABILITY FOR LATENT DEFECTS

South African law also holds a seller liable if he or she sells a thing with latent defects,
even if he or she did not give an express or tacit guarantee, or even if he/she did
not make a misrepresentation or a statement of any kind. Thus the seller’s warranty
against latent defects is a naturale imposed by the common law, where the parties do
not indicate a contrary intention.

6.5.1 Historical development

This form of liability dates from Roman law, when, in the second century BC, the
aediles curules magistratus (whose duties included controlling marketing) laid down,
by way of a special legislative measure, that the seller of slaves and stock (sold on
the market) would be liable for certain defined defects. If such latent defects were
found to exist, the purchaser could sue in terms of the actio redhibitoria within six
months to obtain rescission of the sale, and within one year under the actio quanti
minoris to obtain a reduction in price. In Justinianic law, this rule was extended to
all contracts of sale and all latent defects that affected the usefulness of the article.

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 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

This Roman law rule was retained by Roman-Dutch law and still exists today in a
more developed form. The aedilitian remedies are also available to both parties to a
contract of exchange. We now take a closer look at this type of liability.

6.5.2 Requirements for liability

Before a seller can be held liable, the following requirements must have been com-
plied with:

6.5.2.1 There must be a defect in the article

objective test A defect is an abnormal characteristic in a thing that makes it less useful for its nor-
mal purpose. The defect must therefore be a defect that is inherent in the thing itself
and that does not depend on the particular needs of the purchaser – the purchaser
of a motor car, for example, will not be able to complain that the vehicle is defec-
tive for the purposes of ploughing. In Dibley (80) the judge approved the following
definition of a latent defect:
[T]hey (redhibitory defects) are those defects which either destroy or impair
the usefulness of the thing sold for the purposes for which things of that kind
are ordinarily intended to be used.

The court held that the existence of the graveyard did not constitute a latent defect,
because the presence of the graves did not have an impact on the “usefulness” of
the farm in any way. In Glaston House, the court held that the existence of a national
monument constituted a latent defect in the property, because it was clear that the
purchaser had bought the property with the sole purpose of demolishing it and that
the presence of the national monument prohibited him from doing so, unless certain
steps were taken and costs incurred.

As may be observed, the test is an objective one, that is, whether the thing can be
used for the purpose for which it is normally intended. The requirement does not
imply that there can be only one defect that renders the thing less useful; it is pos-
sible for a number of minor defects to culminate in an impairment of the thing’s
usefulness for the purpose for which it is normally intended.

In Odendaal v Ferraris 2009 4 SA 313 (SCA) the court held that where an immovable
property lacks statutory approval or other authorisations for building alterations,
the absence of such approval does not render the property unfit for the purpose for
which it was purchased, namely habitation. However, the lack of permission in respect
of the alterations (in this case a manhole over a sewer and a carport) may require
demolition or alteration as a condition for approval and therefore interfere with the
ordinary use of the property. As such, the unapproved alterations constitute a latent
defect. Similarly, in Ellis and Another v Cilliers NO and Others 2016 1 SA 293 (WCC)
the court decided that uneven floors and ceilings, which were concealed by a cement
screed and fake ceilings, interfered with the ordinary use of the house, as it made it
extremely difficult to refurbish the house and therefore constituted a latent defect.

special purpose of As indicated above, the test is an objective one, that is, whether the thing can be
buyer used for the purpose for which it is normally intended. In Knight v Trollip 1948 3 SA
1009 (N) we find a similar definition, but with the proviso that if the thing does
not comply with the special purpose for which it was bought to the knowledge of
the seller, this must be regarded as a defect. Some modern writers hold the same

LPL4801/2 31
 view. Where the thing was bought for a special purpose, of which the seller is aware,
it would appear, however, that it is assumed either that representations were made
(which, according to the circumstances of the case, constitute an express guarantee
or a misrepresentation), or that the parties tacitly agreed that the thing was suitable
for a special purpose. Although this would give rise to aedilitian actions as well, it
is actually a case that should fall within the scope of liability for misrepresentation
or faulty performance. In a number of cases, the courts correctly held that the seller
tacitly guaranteed fitness of purpose.

undisclosed It would appear that our courts regard the presence of a servitude that was not com-
servitudes municated to the purchaser when the contract was entered into as a latent defect. In
Southern Life Association v Segall 1925 OPD 1 a servitude was regarded as a defect but,
with reference to Voet 21 1 1, it was stated that the purchaser may act only in terms
of the actio quanti minoris. A further requirement laid down is that the seller must
deliberately have concealed the servitude (i.e. made an intentional misrepresentation),
or have guaranteed that the thing was free of any servitudes (i.e. breach of contract).
In Munnich v Botha 10 PH A 37 it was held that “as in my opinion the existence of the
servitude is a defect ... this is a case where the actio quanti minoris will lie ...” without
mention of the further requirements postulated in the Segall case.

criticism These decisions are correctly criticised by De Wet and Van Wyk (Kontraktereg 330 fn
97), who argue that these are cases of a defect in the owner’s title and not a defect
in the thing itself. According to these authors, the seller is liable for a defective title
in the event of eviction, and thus this case must be brought under that heading. It
can also be brought under the heading of a misrepresentation or a breach of war-
ranty, provided that the respective requirements for that have been complied with.

encumbrances Other diverse encumbrances related to immovable property are also regarded as
latent defects in our case law.

6.5.2.2 The defect must not be insignificant

This is a consequence of the rule de minimis non curat lex (the law does not concern
itself with trifles).

6.5.2.3 The purchaser must not have known of the defect

subjective question It is self-evident that, if the purchaser knew of the existence of the defect, he or
she cannot claim the aedilitian remedies. This is a question that must be assessed
subjectively, and the answer depends on the facts of the case: either the purchaser
knew about it, or he or she did not know about it. This knowledge could have been
acquired in several ways: the seller him- or herself may have told the purchaser, or a
third party may have provided the information; the purchaser him- or herself may
have discovered the defect or the purchaser’s agent may have possessed the neces-
sary information, and so on. Thus, it is purely a factual question.

6.5.2.4 The defect must be latent

objective test The test that must be used in this connection is of an objective nature, namely, whether
a reasonable person in the purchaser’s position would have noticed the defect if he
or she had inspected the thing. If the reasonable person would have discovered the
defect, it is held that the purchaser should have known about it. The nature of the

32
 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

inspection which a reasonable person would have conducted will not always be the
same. For example, if there are indications that latent defects are reasonably to be
expected, a reasonable person would conduct a far more careful inspection, as in
the case of the sale of a very old car. Of course, a reasonable person would always
notice very obvious defects. Hence the maxim caveat emptor.

expert When dealing with an expert purchaser (or an expert who is conducting an inspec-
tion for latent defects on behalf of the purchaser), Voet 21 1 9 is of the opinion that
he or she should have known of the defect in the thing as a matter of course. This
view has been supported in statements in certain cases, but rejected in others. The
following dictum, for example, appears in Knight v Hemming 1959 1 SA 288 (FC) at 291:
The balance of authority seems to be against any rule that a purchaser who
has employed an expert is taken to have known of a defect which should
have been discoverable by that expert, but the fact that there has been expert
examination may in some cases go to show that there has in fact been knowl-
edge of the defect.

The modern writers support Voet. The position is therefore that, if the defect
would have been reasonably discovered by a reasonable person possessing the same
knowledge as the expert, knowledge of the defect is ascribed to him or her (or his
or her principal).

6.5.2.5 The defect must have existed at the time the contract was entered into
In essence, we are dealing here with a question of fact: did the defect exist when the
agreement was entered into, or did it develop later? If it developed after the conclu-
sion of the contract, the prejudice is naturally that of the purchaser. However, it is
sometimes difficult to prove that the defect was present at the time the contract
was entered into. The onus of proving this fact rests on the purchaser. If he or she
proves that the defect existed shortly after the agreement was entered into, this may
contribute to the discharge of the onus, but is in no way decisive.

6.5.3 The scope of liability for latent defects

The aedilitian remedies are the actio redhibitoria and the actio quanti minoris.

(1) availability
actio redhibitoria The actio redhibitoria is available in modern law if the purchaser can prove that a rea-
sonable person would not have bought the article had she been aware of the defects.
Where more than one article has been bought and one is affected by a serious defect,
there must be restitution of not only the single article but of all the articles, provided
that it is apparent that it was the intention to sell the articles as a unit, and the pur-
chaser can prove that a reasonable person would not have bought the article had he
or she been aware of the defect in it. If this is not the case, there can be restitution
of no more than the single article.

(2) what can be claimed

The purchaser may set the contract aside and claim restitutio in integrum under the actio
redhibitoria. This means that the seller must repay the purchase price with interest

LPL4801/2 33
 and compensate the purchaser for all reasonable expenses incurred in connection with
the thing from the time of its receipt. The purchaser must return the thing, unless
it has been destroyed through no fault of his or her own. If it is the purchaser’s fault
that the thing has been destroyed or materially damaged, the action is not available.
This is the position according to our common law and certain decided cases. If the
damage is negligible, this should not stand in the purchaser’s way, provided that he
or she is prepared to compensate the seller for the damage. Normal wear and tear
must, however, be borne by the seller. If the purchaser has alienated the thing, there
can be no rescission if the intention to waive his or her right of rescission can be
deduced from his or her conduct.

(1) availability
actio quanti The actio quanti minoris is intended for less serious cases, namely, where a reasonable
minoris person would still have bought the thing, but would merely have paid less for it had
he or she been aware of the defect. It is also available when the actio redhibitoria can-
not be instituted because the purchaser has neglected the article, or because he or
she has waived his or her right to resile.

(2) what can be claimed

In the case of the actio quanti minoris, reduction in price is claimed in terms of the
agreement. The amount which may be recovered is the difference in value between
the purchase price and the true value of the defective article. There is no unanimity
as regards the time at which the value is to be determined. It would seem that the
correct date is the date of the sale.

defence Not only can the purchaser positively enforce his or her claim for restitution or a
reduction in price by way of the actiones redhibitoriae or quanti minoris, but he or she
can also enforce it negatively by relying on the guarantee as a defence when he or
she is sued for the purchase price. If he or she relies on restitution as a defence, he
or she will naturally have to return the article.

(3) Trade-in transactions

trade-in In Wastie v Security Motors (Pty) Ltd 1972 2 SA 129 (C) it was held that not only the
transactions buyer, but also the seller can invoke the aedilitian actions where the thing traded
in has a latent defect. The facts of this case illustrate this legal question well: SM
sold W a motor car for R1 250. The purchase price consisted of R400 in cash, and
W traded in his old motor car to cover the balance. After the sale contract had
been concluded, SM discovered that the motor car which had been traded in had a
latent defect. It would cost R120 to repair the defect. SM claimed the R120 under
the actio quanti minoris on the ground that a latent defect was present at the time of
conclusion of the contract of sale. The court held that, where a part of the purchase
price consists in something other than money, the same principle that applies to
the thing sold, applies to the non-monetary part of the price. The reason is that,
in contracts of exchange, both contracting parties are protected by the aedilitian
actions against latent defects in the things which are the subject matter of these
contracts, and that it would be unfair and illogical not to afford similar protection
to the seller in respect of the thing traded in. Thus the judge held that the seller
could also invoke the actio quanti minoris if the non-monetary part of the
price contained a latent defect.

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 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

In two subsequent cases the courts held that the aedilition actions are not available
to the seller in the event of a dictum et promissum or a latent defect pertaining to the
trade-in thing (Mountbatten Investments (Pty) Ltd v Mahomed 1989 1 SA 172 (D) and
Bloemfontein Market Garage (Edms) Bpk v Pieterse 1991 2 SA 208 (O)). The courts were
of the opinion that the common law should not be extended to afford protection
to the seller under these circumstances. (In Mountbatten the purchaser made a false
statement regarding the year model of the trade-in vehicle and the seller relied on
the actio quanti minoris in order to claim the difference in the trade-in price and the
market value of the model.) However, in Janse van Rensburg v Grieve Trust CC 2000 1
SA 315 (C) the court followed Wastie and held that the aedilitian remedies should
be available to the seller for dicta et promissa and latent defects regarding the trade-in
thing, because this is an instance where the common law should be extended and
adapted. The court held, furthermore, (325–326):
It goes without saying that, in a trade-in agreement, it would be unjust, in-
equitable and unreasonable should the seller be liable for latent defects in,
and misrepresentations relating to, the vehicle sold by him, while no such
liability attaches to the purchaser in regard to the vehicle traded-in by him.
The purchaser would in fact be at large, while proclaiming his innocence and
good faith, to deliver a defective trade-in vehicle in the knowledge that the
seller will have no recourse against him by means of the aedilitian actions. If
the aedilitian actions are available to the one, so also should they be available to
the other. If this were not so, the law would be paying lip-service to the good
faith required of parties to a synallagmatic contract, with its reciprocal rights
and duties. It would also be in conflict with the behests of public policy, which
represents the balanced interests of all members of a community, including
those participating in commercial interaction with one another.

The court furthermore regarded the extension of the application of the aedilitian
actions to be consonant with the spirit and values contained in the Bill of Rights of
the Constitution of the Republic of South Africa, 1996. The approach in the Janse
van Rensburg case is to be preferred.

overlap of The purchaser who is entitled to use the actio empti or delictual remedies because
remedies
of the presence of a misrepresentation or the absence of guaranteed commendable
characteristics, may, if he or she prefers, use the aedilitian actions if a latent defect
is present in the thing sold.

6.5.4 Cases where the aedilitian remedies are not available to the
purchaser
The aedilitian remedies are not available to the purchaser in the following instances:
sheriff, trustee or (1) In the case of sales in execution by the sheriff, trustee or curator bonis of an
curator bonis
insolvent estate.
waiver (2) Where the purchaser has waived his or her rights. This waiver may be tacit or
express, at the time the contract was entered into or thereafter.

6.5.4.1 Waiver at the time the contract was entered into

voetstoots The obligation to compensate for latent defects in a thing is one of the naturalia of
the sale agreement. The parties are however, competent to stipulate, when entering
into the agreement, that the seller will not be liable for latent defects in the thing.

LPL4801/2 35
 Such a stipulation is known as a “voetstoots clause”. A voetstoots clause may be expressly
included in an agreement by mentioning the clause by name, or it may be tacitly
included, for example, by saying that the article is sold “as it stands”, “with defects”
or “with all its faults”. Whether such an agreement has in fact been entered into is
a question of fact.

Van der Merwe A voetstoots clause cannot afford a seller any protection against a misrepresentation
and Glaston made by the seller. Where there was an omission, the Appellate Division held in
Van der Merwe v Meades 1991 2 SA 1 (A) that a seller will be deprived of the protec-
tion afforded by a voetstoots clause where the purchaser can prove that the seller was
actually aware of the existence of a defect in the thing sold at the time of making the
contract and dolo malo (intentionally) kept silent about its existence to the purchaser
with the purpose of defrauding him or her. Constructive knowledge on the part of
the seller is not enough; neither is knowledge of the defect that the seller had previ-
ously, but that he or she no longer has. In Glaston House the court found that the
seller could not have forgotten about the encumbrance (the national monument), as
the purchaser had mentioned repeatedly that he intended to demolish the building.
He furthermore never pointed out the art work to the purchaser, although he knew
very well of its existence and knew that the purchaser did not know of its existence.
The court found that it could validly be concluded that the seller had intentionally
and fraudulently concealed its existence from the purchaser, which had the effect
that the seller could no longer rely on the voetstoots clause and which furthermore
amounted to a misrepresentation, which is a delict.

6.5.4.1.1 The NCA on the admissibility of the voetstoots clause

The NCA clearly prohibits the voetstoots clause in contracts where the NCA is appli-
cable. Please refer to Study Guide 3, paragraph 10.3. It seems that a voetstoots clause
would classify as a term that would exempt the credit provider from liability (or limit
such liability) for any guarantee or warranty that would, in the absence of such term,
be implied in the credit agreement (please refer to Study Guide 3, para 10.3). There-
fore the inclusion of a voetstoots clause appears to be prohibited in terms of the NCA.

6.5.4.1.2 The CPA on the admissibility of the voetstoots clause

Please revise section 51 of the CPA, which deals with prohibited terms. Please reread
Study Guide 3, paragraph 22.4. Section 51(1)(b) of the CPA prohibits a term that,
directly or indirectly, purports to waive or deprive a consumer of a right in
terms of the CPA. Please also refer to study guide 3, paragraph 23.2. Although it
does not specifically prohibit exclusion of rights in terms of the common law (such
as the seller’s warranty against latent defects), you will discover in the following sec-
tions that the CPA incorporates statutory warranties against defects in goods that go
even further than the common law warranty against latent defects. The insertion of
the voetstoots clause in a sale agreement would therefore be prohibited in an indirect
way as it would purport to take away the buyer’s statutory warranties, as discussed
in paragraph 6.5.6 below.

6.5.4.2 Waiver of rights after the contract has been entered into
Tacit waiver of rights (express waiver needs no argument) once the contract has
been entered into can exist either as regards the payment of the purchase price or
as regards acceptance of the thing.

36
 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

price The purchaser may possibly forfeit his or her rights to both restitution and reduc-
tion in price if he or she voluntarily pays the purchase price after becoming aware
of the defects in the thing. It is a requirement that payment must not have been
made under protest since, if it was made under protest, the intention to resile and
claim restitution, or to claim a reduction in price, is clearly apparent. In any case, it
remains a question of fact whether or not payment with knowledge of the defects
amounts to a waiver of rights.
acceptance As regards waiver of rights by acceptance of the article, it is generally accepted that
the purchaser’s remedies relating to rescission are affected thereby, but not the rem-
edies relating to reduction of the price. Mere receipt of the thing is not equivalent
to a waiver of rights, but it is quite possible that the acceptance of the thing may
have that result. The acceptance of the thing may consist in its inspection by the
purchaser, followed by discovery of the defects, either by chance or by expert inspec-
tion (since a latent defect cannot be revealed by a normal, reasonable inspection),
followed by the decision to retain the article despite any defects by exercising powers
of ownership over the thing. From this it can easily be deduced that the right to claim
restitution has been waived, but it does not necessarily follow that the purchaser has
also waived his or her remedy relating to reduction of the price. Previously, it was
thought that if the purchaser does not subject the thing to an inspection within a
reasonable time after receipt thereof to reveal any latent defects, he or she thereby
loses his or her remedies relating to rescission. This argument does not hold water:
since latent defects cannot be revealed by normal, reasonable inspection, it would be
fruitless to conduct such inspection at any stage – the purchaser will detect nothing
in any case. If the defect can be detected by normal inspection (instituted within a
reasonable time) or by any other means, the defect cannot be regarded as a latent
defect, and therefore the purchaser cannot succeed. However, it would prejudice the
purchaser’s claim if he or she did not institute an action within a reasonable time after
discovering the defect, provided that the only conclusion which can be drawn is that
it was the purchaser’s intention to waive any rights thereby. Therefore the position
ought not to be analogous to that where a guarantee has been given that the thing
possesses certain characteristics. In the latter case, the purchaser should be able to
determine, by means of a normal inspection within a reasonable time, whether the
thing complies with the requirements of the agreement or not.

influence of the As you will see below, the warranties created in terms of sections 55 and 56 of the
CPA CPA allow the buyer to return defective goods up to six months after delivery of
the goods. Therefore, where the CPA is applicable to a transaction, a seller will not
be able to rely on waiver by the purchaser within the first six months. Please also
refer to Study Guide 3, paragraph 23.2.

6.5.5 Theoretical explanation of the aedilitian liability for latent defects

not breach of The seller who is liable for latent defects in the article is liable for no more than
contract restitution or a reduction in price, and not for damages. We cannot say that the
seller is committing a breach of contract, firstly because he or she is not at fault,
and, secondly, because the purchaser’s remedies do not measure up to the remedies
afforded for breach of contract. How can the aedilitian remedies be explained in
terms of legal systematics? A few theories in this regard are discussed below.
warranty Our courts are inclined to speak of a warranty against latent defects in the same way
that they speak of a warranty against eviction. An objection can be raised to equat-
ing this liability with a guarantee: it would mean that a seller who delivers an article
with latent defects commits breach of contract in the form of breach of warranty,
and should consequently be liable for the full damage suffered by the purchaser,

LPL4801/2 37
 while it is clear that our law allows only restitution or a reduction in price, and not
damages. To speak of warranties in such unqualified terms is therefore unacceptable.

Nienaber According to Nienaber (1963 THRHR 19 32), this objection to the court’s view is
not insurmountable. He argues that, in the absence of a provision to the contrary,
specific form of the law reads into the contract a guarantee against latent defects, but the law also
guarantee
prescribes a specific remedy in case of its breach, that is, restitution or a reduc-
tion in price, according to the circumstances.

evaluation This construction explains why the seller may be held liable even if he or she was
entirely blameless and in good faith as regards either the third party’s claim or the
presence of latent defects in the article – because, just as absence of fault is no defence
against a claim instituted on the ground of a consensual guarantee, it is no defence
against a claim instituted on the ground of a guarantee arising from the operation of
the law. Seen in this light, the guarantee implied by law against latent defects operates
to create obligations: the seller is obliged to allow restitution or a reduction in price.

criticism This view has been criticised as being an artificial construction of the current legal
rules and contributing very little to the search for the true basis of aedilitian liability
(Olivier 1963 THRHR 173 180). This harsh criticism is probably unjustified. The
question does arise, however, whether the construction tallies in all respects with
the rule in positive law. Would a seller who refuses to grant a reduction in price in
fact be committing a breach of contract (i.e. repudiation), with all the implications
this entails (i.e. rescission)?

enrichment Olivier (1963 THRHR 173) holds that, in the case under discussion, one is dealing
with undue enrichment. His argument appears to be that a seller’s failure to inform
a buyer of a latent defect may, in certain circumstances, be regarded as negligent
misrepresentation. According to him, this wrongful misrepresentation satisfies the
sine causa requirement for enrichment and the seller is consequently liable for enrich-
ment. The amount by which the seller is enriched is either the price or the extent to
which the price exceeds the value of the thing. This explanation results in its own
problems, for example, the question of whether the recognition of liability based
on enrichment in this context might not lead to the (untenable) situation where the
unsuspecting seller who has spent the purchase price will no longer be liable (or will
only be partially liable, in the event of some of the price having been squandered).

De Wet & Van Wyk According to De Wet and Van Wyk (Kontraktereg 332–333), the liability of the seller
for latent defects is a particular form of liability based on neither breach of contract
nor fraud. The liability of the seller, may, in accordance with this, be seen as being
simply a consequence of a rule of positive law, which provides that a seller incurs
limited liability if he or she has sold something that turns out to have had a latent
defect. The rule would admittedly take effect only where parties have entered into
a contract of sale, but this certainly does not mean that it is the source of a genuine
contractual obligation or a delictual obligation. This explanation may prove to be
useful in practice.

6.5.6 The influence of the CPA on the common law warranty against
latent defects and the aedilitian remedy
Please read study unit 23 in Study Guide 3 carefully and study paragraphs
23.1 and 23.2. You will immediately grasp that a defect is widely defined in the CPA
and would include both latent and patent defects. Secondly, you will see that

38
 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

the warranty in terms of section 56(1) of the CPA (read together with s 55(2) of the
CPA) provides the buyer with a wide range of warranties relating to the quality of the
goods. Please ensure that you know and understand the full extent of this warranty.
The remedies offered to the buyer if the seller breaches this statutory warranty is
set out in sections 56(2) and 56(3) of the CPA.
How does this correspond to the remedy offered to a purchaser in terms of the
aedilitian actions? Basically, in terms of the aedilitian actions (as discussed in detail
above), the buyer can claim a reduction of the purchase price, or receive a refund
of the purchase price, depending on the seriousness of the defect. In terms of the
CPA, the remedy is similar although the consumer can also demand that the supplier
replace or repair the goods.
Note that the CPA clearly states that this warranty applies in addition to the war-
ranties in terms of the common law.
By this time, you will note that neither the aedilitian actions, nor the remedy in terms
of section 56(3) of the CPA provides the purchaser with an action for consequential
loss.

EXAMPLE
Reread the factual scenario at the beginning of this study unit on page 25. Pieter
will most probably have a claim in terms of the aedilitian actions based on a latent
defect, or a claim in terms of section 56(2) of the CPA. Pieter will be able to claim
back what he paid for the pesticide.

However, he will not be able to claim for his failed crop in terms of these
remedies. The following paragraph will explain under what circumstances the
buyer will have an action for consequential loss. Again, the CPA has widened
the net of liability of the seller.

6.6 THE LIABILITY OF MANUFACTURERS AND DEALERS FOR

CONSEQUENTIAL DAMAGES CAUSED BY LATENT DEFECTS
Both the manufacturer and the dealer are liable for latent defects under the ordi-
nary aedilitian remedies. They are furthermore liable in terms of the actio empti for
consequential loss caused by the latent defects. The liability for latent defects was
discussed in the previous section and only consequential loss will now be examined.

6.6.1 Liability of the manufacturer

Voet According to Voet 21 1 10, a manufacturer is liable for consequential damage on the
ground of the presence of latent defects, even if he or she was not in fact aware of
Holmdene the defect and even if he or she gave no express warranty. The manufacturer is liable
Brickworks in terms of South African common law. In Holmdene Brickworks (Pty) Ltd v Roberts
Construction Co Ltd 1977 3 SA 670 (A) a manufacturer of bricks had sold bricks to a
developer who used the bricks to build a building. As a result of a latent defect in
the bricks, the bricks started to crumble, resulting in the whole building being de-
molished. The court decided that the purchaser (the developer) was allowed to claim
all his losses (including consequential losses) from the brick manufacturer. In this
case it comprised of the cost for the demolishing and the rebuilding of the building.

LPL4801/2 39
basis of liability The exact basis of the manufacturer’s liability is not stated by Voet or the courts. The
precise nature of the basis of the claim is naturally important for the purposes of
calculating the damages: Where the liability is founded on a delict (misrepresentation),
damages are calculated according to the purchaser’s negative interest, but where the
liability is founded on a breach of contract (breach of a warranty), damages are calcu-
lated according to the purchaser’s positive interest. Please refresh your memory in
this regard by referring to the assessment of damages in delict and contract.
Our courts have held that the actio empti is the action that should be used against the
manufacturer. The basis of liability is clearly not the ordinary aedilitian liability, in
so far as consequential loss is recoverable. The liability is probably founded either
on the breach of a warranty (implied by law) or on a misrepresentation in the form
of failure to disclose the presence of the defect because of knowledge of the defect
imputed to the manufacturer. In Holmdene Brickworks the court stated (687) that, on
the facts of that particular case, there was no likelihood that the basis of liability
would lead to different practical results, and the court therefore merely approached
the question as one of breach of contract and decided that the costs incurred for
the demolishment and rebuilding of the building, was a “natural consequence” of
the breach of contract.

6.6.2 Liability of the dealer

Pothier According to the French author Pothier (Treatise par 213), a dealer who specialises
in the sale of a certain type of goods is also liable for consequential loss caused by
Kroonstad
defects in the goods, even if he or she was unaware of the defect. Although Pothier
was expounding French law, this principle has been applied in our law for a number
of years. The position is currently clearly regulated by the Appellate Division decision
in Kroonstad Westelike Boere Ko-operatiewe Vereniging Bpk v Botha 1964 3 SA 561 (A). The
court held (571) that a dealer who was unaware of latent defects in the thing sold
is, in fact, liable for consequential damage caused by the defect, but only “where he
publicly professes to have attributes of skill and expert knowledge in relation to the
kind of goods sold”. In the view of the court, whether a dealer has, in fact, professed
to have such skill is a question of fact. In this case, a dealer sold insecticide to a
farmer to spray his maize to protect it against lice. The farmer applied the insecticide
as directed. However, as a result of a latent defect in the insecticide, his crop failed.
The court decided that because the dealer had professed to be an expert, he was
liable for all the damage caused to the farmer.

Langeberg Voedsel In Langeberg Voedsel Bpk v Sarculum Boerdery Bpk 1996 2 SA 565 (A) the Appellate Di-
Bpk vision applied the Kroonstad case. The seller was a processor and canner of fruit and
vegetables. The seller prescribed to the producers the cultivar of the fruit and the
type of seed to be planted, and supplied the seed to the producers. The seller’s field
workers regularly visited producers and advised them on production methods. All
this was done on the understanding that the seller would later buy the unprocessed
produce. The seller sold sweetcorn seed to the purchaser, but the purchaser’s crop
failed due to a latent defect in the seed. The court found on the facts that the seller
was a merchant dealer who professed to have expertise and specialised knowledge
in relation to the goods he sold, and that the seller was liable for consequential loss
resulting from the latent defect of which he or she was unaware.

An important aspect of this case is that the court, in an obiter, questioned the vi-
ability of the rule regarding the merchant’s liability in modern commercial practice,
although this criticism is of less importance today after the changes brought about
by the CPA (as discussed below).

40
 STUDY UNIT 6: The seller’s duties: the seller’s “guarantee” against latent defects in the thing sold

basis of liability However, neither Pothier nor the courts have worked out just what the basis of
the dealer’s liability is. All they have said is that the actio empti is available in such
a case. As in the case of the manufacturer, one may safely assume that the claim
is not based on ordinary aedilitian liability ( Jaffe & Co v Bocchi 1961 4 SA 358 (T);
Kroonstad Westelike Boere Ko-operatiewe Vereniging Bpk v Botha 1964 3 SA 561 (A)). In
Jaffe the court expressed the opinion, probably obiter, that the liability of the dealer
is based on non-fulfilment of a genuine, tacit warranty. However, in such a case it
is probably more correct to base liability on misrepresentation or, if necessary, on
a warranty implied by law against latent defects. In any case, the liability can very
easily be reconciled with liability based on breach of warranty or wrongful failure
to disclose the presence of the defect owing to knowledge of the latent defect being
imputed to the manufacturer.

6.6.3 Strict liability imposed by the CPA

Study paragraph 23.3 of Study Guide 3 carefully. You will see that section 61 of the
CPA imposes strict joint liability on various persons for any harm caused by the
supply of defective or unsafe goods. “Harm” is broadly defined; please ensure that
you know and understand the full implications of the section.

You will immediately see that this is a strict liability and the purchaser will not have
to prove that the dealer or manufacturer was an expert or professed to be an expert
on the goods, as is the case in terms of the common law. This is the case where the
CPA applies to a transaction.

ACTIVITY
1 Tom sells his farm to Zinziwe. There are 80 old, unmarked graves on the farm.
Tom is unaware of the existence of the graves when the contract is concluded.
Zinziwe finds out about the existence of the graves after conclusion of the
contract. Zinziwe is unwilling to stay on the farm, because she finds the pres-
ence of the graves alarming. You may assume that a valid contract of sale has
been concluded and that the contract complies with the required formalities.
(a) Does Zinziwe have a claim against Tom?
(b) Would it make any difference to your answer to question (a) if Tom had
known of the existence of the graves when concluding the contract?
(c) Would it make any difference to your answer to question (a) if Tom had
guaranteed in the contract that there were no graves on the farm?
(d) Would it make any difference to your answers to questions (a) and (b) if
there had been a voetstoots clause in the contract of sale?
(e) Does Tom’s conduct amount to a dictum et promissum?

2 Reread the factual scenario at the beginning of this study unit on page 25
and then advise Pieter.

5 FEEDBACK
(1) (a)  o. This problem deals with the seller’s liability for latent defects. The
N
only requirement for liability for latent defects that requires further dis-
cussion is the requirement that there must be a defect in the thing sold,
because all the other requirements for liability are present. A defect is
an abnormal characteristic in a thing which makes it less useful for its
normal purpose. In this question, there is no possibility that the purchaser

LPL4801/241
 bought the farm for a particular purpose and that the seller knew about
it. The facts in this question are very similar to the facts in Dibley. In this
case, the court found that unmarked graves do not constitute a defect,
as they do not render the farm less useful for its normal purpose as a
farm and residence. Because Tom did not know about the graves, he
cannot be held liable on the grounds of a misrepresentation.
(b) Yes it would. There would then be an additional basis of liability: negli-
gent misrepresentation, or even intentional misrepresentation (a delict).
A misrepresentation is an untrue representation which precedes the
conclusion of the contract and which causes a party to the contract
either to enter into the contract at all or to enter into it with the existing
content. In our problem, the seller fails to disclose a fact, thereby causing
the purchaser to purchase. The facts of this problem are very similar,
but are not identical to, those of Dibley. In this case, the court held that
the seller was obliged to disclose the presence of the graves because
of the number of graves, the small size of the farm, the fact that the ma-
jority of people did not want to live on such a farm and the fact that the
presence of the graves affected the price of the farm. The court made
the following factual findings: (1) the seller knew of the presence of the
graves; (2) he failed to disclose the presence of the graves because
he thought that the purchaser would not buy the farm if he knew about
the graves; (3) the purchaser would not have bought the farm if he had
known of the graves. It then held that the seller had made a fraudulent
misrepresentation. From the facts of the stated problem it will be seen
as either a negligent or an intentional misrepresentation, which yield
the same remedies.
 ur problem is a case of dolus dans, as it is clear that the purchaser
O
would never have bought the farm if she had known about the graves.
She can therefore claim cancellation of the contract with damages, or
uphold the contract and claim damages. In both instances, she can
claim her negative interest, that is, the damages that would place
her in the position she would have been in had no misrepresentation
taken place.
(c) Yes it would. In this case the seller would be undertaking in a term of
the contract that there are no graves, and he would therefore breach this
undertaking. The normal remedies for breach of contract would apply.
(d) It would make no difference. The seller’s liability for latent defects is one
of the naturalia of the contract of sale and the parties could therefore
exclude this liability with a voetstoots clause. As we have concluded in
question (a) that a latent defect is not present, a voetstoots clause will
make no difference.
With regard to question (b), a voetstoots clause cannot afford a seller any
protection against intentional, negligent or innocent misrepresentation.

42
 (e) No. Tom made no statement of fact.
NB: Quick question! Why is the CPA not applicable to the above sale agree-
ment? Why does the buyer only have remedies in terms of the common
law in this case?
(2)     In this instance, the CPA would be applicable. Why?
You will now need to discuss and apply both common law and statutory law
in relation to latent defects in goods and advise Pieter in full. Do not forget
to discuss Pieter’s potential claim for his failed crop (consequential loss) as
well. You will need to discuss the dealer’s liability in terms of the common
law, as well as the CPA in terms of section 61.

LPL4801/2 43
 7 STUDY UNIT 7
The seller’s duties: the seller’s obligation
7

to transfer ownership or to warrant against

eviction

Zola buys a car from Motorworld (Pty) Ltd for R40 000. Zola pays Motorworld (Pty)
Ltd R40 000 and drives off with the car. The contract contained a clause excluding
Motorworld’s warranty against eviction. A month later Zola is stopped at a roadblock
and the police confiscates her car, because it has been stolen. What are her remedies?

OVERVIEW
Normally a seller is obliged to transfer ownership of the thing he or she sells, but
if the seller is not the owner, he or she warrants to the buyer that he or she will not
be evicted. These obligations are naturalia of the contract of sale.

CONTENTS
7.1 INTRODUCTION
7.2 TRANSFER OF OWNERSHIP
7.2.1 Abstract system of transfer of ownership
7.2.2 The relationship between the payment of the price and transfer of
ownership
7.3 WARRANTY AGAINST EVICTION
7.3.1 Introduction
7.3.2 Requirements for liability for eviction
7.3.2.1 The purchaser must have been evicted
7.3.2.2 Notice
7.3.2.3 Virilis defensio (proper and competent defence)
7.3.2.4 Defective title derived from the seller
7.3.3 Remedies on the ground of eviction
7.3.3.1 Rescission on the ground of eviction
7.3.3.2 Damages for eviction
7.3.4 Cases where limited liability for eviction exists
7.3.5 Theoretical explanation of the seller’s liability for eviction
7.3.6 Eviction and the CPA
7.3.7 Eviction and the NCA

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• understand that the sale is valid even if the seller is not the owner of the thing sold
•• understand that the seller does not guarantee that he or she is the owner of the
thing sold

44
STUDY UNIT 7: The seller’s duties: the seller’s obligation to transfer ownership or to warrant against eviction

•• understand that the seller has a duty to transfer to the purchaser every right and
benefit in respect of the thing sold
•• briefly explain the abstract system of transfer of ownership
•• explain the seller’s duty to transfer ownership if the seller is the owner of the
thing sold
•• explain the relationship between the payment of the purchase price and transfer
of ownership
•• understand that the warranty against eviction is a naturale
•• distinguish between misrepresentation and eviction
•• set out the twofold nature of the seller’s guarantee against eviction
•• explain the requirements for liability for eviction
•• distinguish between liability for failing to give undisturbed possession, latent
defects and eviction
•• explain the remedies for eviction
•• set out the cases where limited liability for eviction exists
•• give a theoretical explanation of the seller’s liability for eviction
•• briefly set out the relevance of the cases, as discussed in this study unit
•• apply the rules discussed here to practical problems
•• explain the influence of the CPA on the common law rules of eviction
•• explain the influence of the NCA on the common law rules of eviction

7.1 INTRODUCTION
For a contract of sale to be valid, it is not a requirement that the seller should be
the owner of the thing sold. The aim and purport of the contract of sale is naturally
that the purchaser should become the owner of the thing sold in the place of the
seller. The seller has an obligation to transfer to the purchaser every right and benefit
arising from the thing sold. The seller therefore has to transfer ownership of the
thing sold if he is owner of the thing. If the seller is not the owner of the thing, the
contract of sale is still valid, but the seller must guarantee (i.e. a guarantee implied
by law) that no-one with a better title will evict the purchaser.

7.2 TRANSFER OF OWNERSHIP

If the seller is owner of the thing sold, he is obliged to transfer ownership of it to
the buyer. The action for the transfer of ownership is the actio empti.

7.2.1 Abstract system of transfer of ownership

law of property Strictly speaking, the question of the transfer of ownership falls under the law of
property. However, because the transfer of ownership is so closely related to certain
types of contract, such as donation, exchange and sale in particular, it is convenient
to discuss it here.

contract As you know, our law distinguishes between agreements creating obligations (con-
tracts) and real agreements. Our law does not allow mere contractual transfer of
real agreement
ownership. A real agreement is required. Ownership is thus transferred if there is
a valid, real agreement: a mutual intention that ownership should pass (agreement)
coupled with delivery (movable property) or registration (immovable property).

LPL4801/2 45
abstract system In South African law, the abstract system of the transfer of ownership is followed
(Commissioner of Customs and Excise v Randles Brothers and Hudson 1941 AD 369). This
means that the invalidity of the preceding contract does not affect the validity of
the transfer of ownership. All that is required is a valid real agreement. The contract
may give rise to the real agreement, but it is in no way an essential element of the
transfer of ownership.

delivery to a carrier Delivery must be made to the purchaser him- or herself or to his or her representa-
tive. It is sometimes important to determine whether delivery to a carrier amounts
to delivery to the purchaser him- or herself on the ground that the carrier is the
agent of the purchaser. The carrier may therefore be regarded as the purchaser’s
representative, except if the seller assumes responsibility in terms of the contract
for having the goods delivered elsewhere. The question which now arises is whether
delivery to the purchaser’s representative necessarily means that ownership passes
to the purchaser. The answer to this question depends on the intention of the par-
ties, which is a question of fact. The seller’s intention must be that delivery to the
carrier must result in the passing of ownership to the purchaser. This intention may
be deduced from the mere fact that the seller has delivered the thing to the carrier.
However, the purchaser must have a similar intention, which cannot be deduced
simply from the fact of delivery by the seller to the carrier (as the purchaser’s rep-
resentative). Such an intention will exist only if the goods handed over to the car-
rier comply with the requirements of the contract. If the goods do not comply with
the terms of the contract, there can be no question of a meeting of minds, which is
postulated for the transfer of ownership. The question of consensus arises only if
the purchaser had the intention to receive the goods in ownership, and that cannot
be reconciled with receipt of an article other than the thing sold, or with receipt of
goods which do not comply with the terms of the agreement (in such a case, the
fact that the purchaser took the thing into his custody does not affect the matter).

7.2.2 The relationship between the payment of the price and transfer of
ownership
price paid or credit In the absence of an express or tacit agreement, ownership of movables passes to
the purchaser despite the fact of delivery only if the purchase price has been paid
or credit is given. The effect of this rule is that, if goods are sold for cash and have
been delivered, and if the price is not paid, the seller may reclaim the article by means
of the rei vindicatio, even where it has come into the hands of a bona fide third party
(subject to his doing so within a reasonable time).

cheque A cheque is not equivalent to cash, as it is merely a means of obtaining cash. It is

quite possible for this instrument to prove to be defective later on. Payment by way
of a cheque must therefore be regarded as (at most) payment subject to a resolutive
condition. If the cheque is not honoured, payment must be considered never to
have taken place. However, it is quite possible that the parties could have regarded
payment by cheque as unconditional, with the result that ownership in the article
passed to the purchaser on delivery.

presumption of a There is a presumption that all transactions are cash transactions, but it is possible
cash sale to rebut this presumption by proving that there was an express or tacit agreement
that credit was given (i.e. that delivery and payment need not take place simultane-
ously), provided that the intention of the parties was clearly apparent. The fact that
credit has been given cannot be deduced from the mere fact that delivery took place

46
STUDY UNIT 7: The seller’s duties: the seller’s obligation to transfer ownership or to warrant against eviction

before payment. A tacit agreement that credit has been given has, for example, been
construed in the following instances:
(1) Where the purchaser offers security for payment of the purchase price.
(2) Where the purchaser agrees to pay interest on the purchase price.
(3) Where a date is laid down for payment after delivery is due.
(4) Where the sale is, in fact, a cash sale and a substantial period elapses before
the seller asserts his or her rights, the inference can be made that credit was
given. What constitutes a substantial period is a question of fact that depends
on the circumstances of each case.
(5) If there had been a series of credit transactions between the parties, or where
this is a common commercial practice.
(6) Although the parties may agree that the purchaser may discharge his or her
obligation to pay the purchase price by means of the acceptance of a bill or the
giving of a cheque or promissory note, this alone does not imply an intention
to give credit. It will, however, imply an intention to give credit in cases where:
(a) a negotiable instrument that is not payable on demand is tendered as
payment
(b) the purchaser has undertaken to accept a bill as payment of the purchase
price at the time of delivery, but payable after sight

subsequent A tacit agreement on credit can be concluded either at the time of the conclusion of
amendment to the
the contract or as an amendment of the parties’ original agreement. Ownership will
agreement
therefore pass in the first case when the thing sold is delivered. In the second case,
ownership passes when the amendment to the initial agreement has been reached
to grant credit.

7.3 WARRANTY AGAINST EVICTION

7.3.1 Introduction
implied warranty It is not a requirement for validity of the contract of sale that the seller must be
owner of the thing sold. If the seller is not the owner of the thing, the law implies
a warranty in the contract that no-one with a better title will deprive the purchaser
of his or her possession, or will hinder him or her in the exercise of those powers
which he would normally have enjoyed as owner. This warranty is thus a naturale of
the contract of sale.

misrepresentation The fact that the seller is liable only for eviction naturally does not imply that he or
she may sell an article belonging to another, with full knowledge that he or she is
not the owner, since this would render the seller guilty of a misrepresentation (see
the judgment of De Villiers JA in Kleynhans Bros v Wessels’ Trustee 1927 AD 271 and
Kerr Sale and lease 179). Wessels JA, however, delivered a contrary decision in this
case. In his view, in such a case the claim would have to be based on eviction and
the purchaser would therefore have to await eviction before he or she can act. The
former view appears to be more acceptable. (See, too, Eklund v Vorster 1938 TPD
252.) The seller may therefore not remain silent about a third party’s claim. This fact
may influence the purchase price of the thing if the purchaser ever wishes to sell it.

two duties The content of the seller’s guarantee implied by law is of a twofold nature:
guarantee (1) Firstly, the seller has a negative duty, that is, to guarantee that no-one with
a better title will deprive the purchaser wholly or partially of his or her use

LPL4801/247
 and enjoyment of the thing, or will hinder him or her in the exercise of those
powers which he or she would normally have enjoyed as owner.
assist purchaser (2) Once the purchaser has given the seller notice of a threat to possession, the
seller has a more positive duty, namely, to assist the purchaser in his or her
defence and by so doing avert the impending eviction.
failure to assist If the purchaser is not assisted in his or her defence by the seller (after notice has been
given of the threat to the purchaser’s possession), the seller is liable on the ground
of breach of contract to compensate the purchaser, either for the costs incurred in
opposing the third party’s claim (i.e. where the purchaser him- or herself has suc-
cessfully opposed the third party’s claim) or for the damage resulting from the fact
that the seller did not avert eviction by rendering such assistance or by assisting in
some other way. Where notice is unnecessary and eviction takes place, the purchaser
must be compensated for the damage caused by the eviction.

7.3.2 Requirements for liability for eviction

Before a seller can be held liable for eviction, the following requirements must have
been complied with:

7.3.2.1 The purchaser must have been evicted

original meaning Eviction in its true sense means the actual confiscation of possession of a thing by a
third party who proves in a lawsuit that he or she has a better title to the thing than
the purchaser. The following are examples of the most common forms of eviction: the
true owner claims the thing from the purchaser; the holder of a servitude exercises
his right against the purchaser; someone with a temporary right to the thing (e.g. a
lessee or mortgagee) enforces that right against the purchaser, and so on.

extended meaning The meaning of eviction has, however, been extended to include cases involving more
than actual judicial deprivation of possession of the thing. Schreiner JA in Lammers
and Lammers v Giovannoni 1955 3 SA 385 (A) at 390 commented as follows: “It should
be observed that the warranty against eviction has in certain respects been modified
in the direction of providing more effective help to the buyer.”

The following are examples of this extension:

pay sum of money (1) Eviction now includes cases where the purchaser is compelled by a court
order to pay a sum of money if he or she wishes to retain the thing. The view
is that the purchaser has been evicted in the amount he or she has had to pay
in order to retain the thing. Judicial deprivation of possession has taken place.
third party claims (2) Eviction also includes cases where the purchaser sells the thing to a third
for eviction
party who is subsequently evicted by the true owner and then sues the seller
(the original purchaser). This original purchaser can now sue the seller from
whom he made the purchase on the ground of eviction (and this person can, in
turn, sue the person from whom he or she purchased the thing, etc), although
actual judicial deprivation of possession has not taken place.
police seizure (3) Where the police seize the thing sold as suspected stolen property, the buyer
is evicted as soon as it becomes certain that in terms of section 20 of the
Criminal Procedure Act 51 of 1977 the police will not return the thing to the
buyer (see Vrystaat Motors v Henry Blignaut (Edms) Bpk 1996 2 SA 448 (A)). In
this case, permanent dispossession has lawfully taken place even though the
third party has no better title to the thing than the buyer.

48
STUDY UNIT 7: The seller’s duties: the seller’s obligation to transfer ownership or to warrant against eviction

demand and unas- (4) The purchaser’s action for eviction is also available even where there has been
sailable claim neither judicial deprivation of possession of the thing, nor a lawsuit instituted
to recover a sum of money. Once it has been established that eviction is juris-
tically inevitable, the buyer may act against the seller. This principle that an
inevitable occurrence may be anticipated is encountered in several areas of our
law. The buyer thus has a claim for eviction where he or she can show that:
(a) the third party has made a demand on him or her (a mere notice of his
or her right by the third party is insufficient) and
(b) the buyer has voluntarily surrendered the thing to the third party, or
has admitted the demand and legally bound him- or herself to comply
with it and
(c) the seller had no title that could have made resistance of the true owner
possible; in other words the third party had a legally unassailable claim
to the thing (Olivier v Van der Berg 1956 1 SA 802 (C) 805; Lammers and
Lammers).

Neither a notice by the buyer to the seller of the demand, nor a virilis defensio is a
requirement before the buyer has a claim for eviction under these circumstances.

Van Staden A decision that appears to contradict this trend is that of Van Staden v Pretorius 1965 1
SA 852 (T). Here a buyer of immovable property had taken possession of the prop-
erty and had paid for it. However, before he could take transfer, the seller’s creditors
attached the property in execution of a debt owed by the seller. Rather than losing
the property for it to be sold in execution, the purchaser himself paid the amounts
owing. He eventually obtained transfer, but tried to recover these amounts from
the seller as damages resulting from breach of warranty against eviction. The court
ruled against him (853–854):
... [T]he eviction in regard to which the warranty exists must be one in respect
of a flaw in the title of the seller which either existed at the time of the sale
or, if arising subsequent thereto, is due to some act on the part of the seller ...
The threat that occurred to the ... [buyer] did not arise out of any flaw in the
title of the seller. At no time was there any such defect. This was not a case,
e.g. where subsequent to the sale to the ... [buyer] the ... [seller] had sold and
transferred the property to some innocent third party. A buyer who fails to
obtain dominium of the property purchased runs the risk of being unable to
obtain transfer because of a concursus creditorum or of an attachment by a creditor
followed by a sale in execution ... In such event the purchaser is entitled to a
claim for damages against the seller because of the latter’s failure to carry out
his obligation to give transfer and repayment of any amount paid in pursu-
ance of the sale, a comfort that may indeed be a cold one, particularly if, as
in the present instance, he has already parted with the full price. This claim
does not arise out of any guarantee against eviction, but simply because of the
failure to implement the duty to effect transfer into the name of the purchaser.

criticism It can be argued that a flaw in the title signifies no more than that a third party has
a better claim to the property. In this case, this was indeed the position after attach-
ment by the creditors. The mere fact that the seller may, in addition, be in breach of
his or her duty to pass transfer does not mean that this act does not amount to evic-
tion as well. In every instance where a third party with a better title to the property
exercises his or her right, this will in fact be the case. Therefore, the decision does
not appear to be above criticism.

LPL4801/249
unlawful It should be noted that the seller is in no way liable for unlawful interference with
interference possession, for example for theft. The seller is liable only if someone lawfully in-
terferes with the use and enjoyment of the thing. Note that the position is different
where the seller has not yet placed the purchaser in possession, in which case the
seller must discharge his or her duty to provide undisturbed possession and must
therefore evict unlawful possessors.

A defect in the title that is transferred to the buyer (which gives rise to an eviction
distinction claim) has to be distinguished from the seller’s liability for failing to give undisturbed
possession where there is a “defect” (disturbance) in the physical possession obtained
undisturbed pos- by the buyer at the time of delivery, and from the seller’s liability for latent defects
session/latent
defects/eviction where there is a defect in the thing itself that makes it less fit for its normal use.

7.3.2.2 Notice
protect buyer The purchaser must give the seller notice of a third party’s claim to possession of
the thing (see York & Co (Pty) Ltd v Jones NO (1) 1962 1 SA 65 (SR)). This notice
must be given in good time so that the seller may have the opportunity to fulfil his
or her general obligation to protect the purchaser in his possession. The seller may
enter into negotiations with the true owner, or he or she may participate in an ac-
tion instituted against the purchaser, or he or she may merely assist the purchaser
in word and deed during the action. By giving the necessary notice, the purchaser is
actually protecting him- or herself to ensure that he or she will be successful in his
or her claim for eviction against the seller, irrespective of whether or not the third
party had a valid title.

no notice If the purchaser fails to give the seller notice, he or she has no right of recourse
against the seller – unless he or she can prove that the third party’s claim is legally
unassailable in any case, or that it is the seller’s fault that the notice did not reach him
or her in time. In other words, if the purchaser can prove that the third party has a
better title to the thing than the seller, he or she will not lose his or her claim against
the seller merely because he or she did not give notice of the eviction to the seller.

7.3.2.3 Virilis defensio (proper and competent defence)

meaning The meaning of virilis defensio is not clearly defined. In York & Co (Pty) Ltd v Jones
NO (2) 1962 1 SA 72 (SR) 83, Beadle CJ referred to various sources and concluded:
“It seems to me, on reading these authorities, that nothing more is expected of a
purchaser than that he should conduct his case as a reasonable litigant.”

reasonable Examples of measures that our case law considers as reasonable are the following:
measures
(1) The plaintiff company employed an attorney and an advocate to act for it.
(2) The proceedings it brought were brought in the proper form.
(3) The pertinent facts were laid before the court.
(4) No manifest error in law was made in the presentation of the case to the court.
(5) No wrong concessions of fact or law were made.

effect of notice and Where the seller decides not to get involved after receiving due notice, and the
virilis defensio purchaser is evicted after conducting a virilis defensio, the seller cannot question the
validity of the third party’s right to the thing sold as this is sufficient proof that the
third party’s claim was unassailable (York & Co (Pty) Ltd v Jones NO (1) 1962 1 SA
65 (SR) 68–69).

50
STUDY UNIT 7: The seller’s duties: the seller’s obligation to transfer ownership or to warrant against eviction

In ABSA Bank Ltd v Eksteen [2011] ZASCA 40 (29 March 2011) par [13] the court
held that where the seller receives a notice of the threatened eviction from the buyer
and does not respond, the seller cannot later argue that the buyer should have resisted
the third party’s claim more energetically or skilfully.

prerequisite The question is whether the purchaser today still needs to conduct a virilis defensio as
a prerequisite for his or her claim against the seller. There are two distinguishable
situations here.

claim unassailable (1) The third party’s claim is legally unassailable and notice has/has not
been given to the seller. To conduct a virilis defensio in such a case would
amount to a waste of time and energy. In Lammers and Lammers it was clearly
stated that a virilis defensio is not necessary in such a case.
Even if notice has not been given, a virilis defensio will not be necessary, but
the onus of proving that the claim is unassailable has to be discharged by the
purchaser before he or she can succeed in his or her action against the seller.
claim not (2) The third party’s claim is not unassailable. In such a case, notice must
unassailable be given in any case before the purchaser may sue the seller. Must the
purchaser still conduct a virilis defensio? It may be argued that, after notice
has been given, the seller has only him- or herself to blame if the purchaser
is evicted. After all, it is part of the seller’s contractual obligation to assist
the purchaser in his or her defence: why should the purchaser have to take
full responsibility after he or she has given the seller notice of the claim? If
this is correct, it appears that the requirement of virilis defensio, in fact, has no
independent existence.

7.3.2.4 Defective title derived from the seller

The defect in the purchaser’s title that gave rise to the eviction must have been
derived from the seller.

7.3.3 Remedies on the ground of eviction

general principles Of course, if the above-mentioned requirements have been complied with, the seller
has breached the contract with the purchaser. One would therefore expect that the
normal principles relating to the calculation of damages for breach of contract, and
the possibility of rescission on the ground of such breach of contract, should apply
to eviction as well.

Let us now take a closer look at the position as far as eviction is concerned.

7.3.3.1 Rescission on the ground of eviction

cancellation appar- In Alpha Trust (Edms) Bpk v Van der Watt 1975 3 SA 743 (A) the Appellate Division
ently irrelevant
held that, in a case of total eviction, in terms of the actio empti the purchaser is entitled
to claim from the seller repayment of the purchase price and compensation for his
or her damages. Earlier in the decision, the judge came to the conclusion that the
actio ex empto is fundamentally aimed at claiming damages, with the purchase price
as minimum damages. The effect of the decision is that a buyer who has been totally
evicted can always claim at least the purchase price from the seller. This creates the
impression that the buyer who has been totally evicted can always rescind the con-
tract (and claim the purchase price, apart from his or her claim for damages). This,

LPL4801/2 51
 however, is not the case, since it was expressly decided that the buyer does not need
to cancel the contract between him- or herself and the seller. He or she is entitled
to claim the purchase price in any case. Rescission is therefore not used when the
purchase price is claimed, but apparently the purchase price is claimable as a form
of minimum damages. In the light of this decision, rescission apparently no longer
plays a part as far as eviction is concerned.

7.3.3.2 Damages for eviction

general principles According to the general principles applicable to breach of contract, damages ought
to be calculated according to the buyer’s positive interest (and this applies in the case
of eviction as well), irrespective of whether the buyer upholds the contract or resiles
from it. If he or she resiles, he or she ought to be able to claim, in addition to the
purchase price, any damages incurred as a result of the eviction. If he or she upholds
the contract, he or she ought to be able to claim only the damages sustained as a
result of the eviction. This would mean that, if the thing sold has depreciated or
appreciated in value after the conclusion of the contract, only the value of the thing
at the time of eviction can be claimed where the buyer does not rescind the contract.
After all, this is the loss which the buyer suffers as a result of eviction. This view
was expressed by some writers and in older court decisions.

purchase price Alpha Trust has, however, changed this position somewhat. Rescission is not taken
minimum
into account, and the buyer who has been totally evicted is entitled, in any case,
diminishing/de- to invoke the actio empti to claim the purchase price as minimum damages. Nev-
preciating asset? ertheless, the decision leaves room for the possibility that, where the thing sold is
a fast-diminishing or depreciating asset, the buyer, who has had a long period of
further damages uninterrupted use and possession of the thing, may not be able to recover the full
purchase price on eviction. The court could possibly free the seller from repayment
of a part of the purchase price.

Apart from the purchase price, the buyer could then claim from the seller any further
damages he or she may have sustained as a result of the eviction. Here the general
principles are still applicable in calculating the amount of damages – that is, only
damages that were reasonably foreseeable at the conclusion of the contract will be
claimable. Where appropriate, the purchaser will then also be entitled to compen-
sation for forfeited profits or to reimbursement for expenses incurred in opposing
the third party’s claim.

car Why the court merely raised the issue of a rapidly diminishing or depreciating as-
set and did not apply it to the facts of the case is uncertain, because the car which
was sold depreciated by about half in a ten-month period. In Katzeff v City Car Sales
(Pty) Ltd 1998 2 SA 644 (C) 655 the court also refused to regard a car as a rapidly
depreciating asset.

improvements As part of his or her damages for eviction, the purchaser can claim reimbursement
from the seller for improvements that he or she has effected to the thing sold. See, in
this regard, Lammers & Lammers. Here the purchaser (Giovanonni), to the knowledge
of the seller (Lammers & Lammers), made improvements to the article, a car, which
increased its value from 25 pounds to 125 pounds. The true owner of the vehicle
(C Motors) obtained a default judgment against the original purchaser (T) for pay-
ment of the purchase price. (The latter sold the car to the seller, without being the
owner of it.) Following the default judgment, the sheriff attached the vehicle, which
was found in the possession of the purchaser, who promptly notified the seller. The

52
STUDY UNIT 7: The seller’s duties: the seller’s obligation to transfer ownership or to warrant against eviction

seller elected to do nothing. The purchaser then successfully instituted an action

based on eviction against the seller for 125 pounds, being the value of the vehicle
at the time of the eviction. This order was affirmed by the appeal court. The seller
averred that he was only liable for the 25 pounds. The seller argued that, in respect
of the improvements, the buyer had a claim in enrichment as well as a lien against
the real owner. Consequently, he should never have surrendered the car and hence
he, the seller, was not liable, since the buyer had obviously not put up a virilis defensio.
However, on appeal the majority confirmed that, in such a case, the buyer is not
obliged to put up a virilis defensio after notice to the seller: consequently, the seller is
liable on the ground of breach of warranty for all foreseeable damage, that is, the
value of the improved product.

partial eviction In a case of partial eviction the buyer will be able to retain what he or she has left
after eviction, and will be able to claim compensation, calculated according to his
or her positive interest, for that part of the thing of which he or she was dispossessed.

7.3.4 Cases where limited liability for eviction exists

agreement exclud- The seller’s liability for eviction is one of the naturalia of contracts of sale, but may
ing liability be altered only partially by mutual agreement. In Vrystaat Motors v Henry Blignaut
(Edms) Bpk 1996 1 All SA 449 (A) the court held that the parties may exclude the
seller’s liability for damages, but not for the return of the purchase price. A clause
excluding the seller’s liability for eviction would thus exclude liability for damages,
but not for the return of the purchase price. Such an agreement cannot be read into
a pure voetstoots clause.

without bad faith Where both parties reasonably know in good faith that a thing is not the seller’s
and the thing is, in fact, being sold, without the purchaser implying expressly or by
means of his or her conduct that he or she is content to buy in the hope that he or
she will not be evicted (literally entering into an emptio spei), the purchaser is entitled
to be reimbursed for the purchase price on eviction, but not for his or her loss (id
quod interest).

uncertain rights Where the seller in good faith sells the thing with uncertain rights (incertum ius) or
emptio spei as an emptio spei (i.e. where the purchaser takes the risk of eviction upon him- or
herself), the purchaser is without a remedy if eviction takes place.

7.3.5 Theoretical explanation of the seller’s liability for eviction

warranty implied It is often stated that the seller warrants against eviction. It is true that fault on the
by law part of the seller is not a requirement for liability, because the seller is liable for evic-
tion even if he or she acted in good faith. The buyer’s remedies for eviction differ
in two respects from the ordinary remedies for breach of contract: cancellation is
irrelevant and the measure for the assessment of damages is not the value of the thing
sold during eviction, but the purchase price as a minimum. The view that the seller’s
liability is based on a warranty implied by law can be accepted, because damages are
assessed in all other respects as with ordinary breach of contract.

7.3.6 Eviction and the CPA

Please make a detailed study of Study Guide 3, paragraph 21.3. Section 44 of the
CPA contains a number of provisions similar to the common law principles regard-

LPL4801/2 53
 ing the warranty against eviction. You will also note that the common law remedies
will be invoked upon transgression of section 44 of the CPA. Unlike the situation in
the common law, this statutory warranty may not be excluded by agreement between
the parties, as it will be seen as a prohibited term under section 51 of the CPA. Also,
it appears that the four requirements as discussed above need not be fulfilled. This
will apply if the transaction falls within the scope of the CPA.

7.3.7 Eviction and the NCA

Please reread Study Guide 3, study unit 10, paragraph 10.3. You will note that the
exclusion of the common law warranty against eviction will be treated as a prohibited
term where the NCA applies to a contract.

ACTIVITY
1 Why is it important to determine whether a sale of a movable thing is a sale
for cash or a sale on credit?
2 Can a buyer who has not yet received undisturbed possession be evicted?
3 Peter buys a car voetstoots from Rachel for R7 000. The car is delivered and
the purchase price paid. Afterwards it comes to light that the car is a stolen
vehicle and actually belongs to John. John threatens Peter with litigation if
he (Peter) does not return the car immediately to John. Peter allows himself
to be intimidated and returns the car. Rachel did not know that the car was
stolen. Peter claims the return of the purchase price of the car from Rachel.
Rachel raises the following defences against his claim:
(a) That Peter never told her that John was threatening Peter with litigation.
(b) That he simply handed the car back without any further ado.
(c) That the contract was voetstoots.

Discuss Peter’s claim and Rachel’s defences.

4 Reread the factual scenario at the beginning of this study unit on page 44.
Kindly advise Zola on her possible remedies.

6 FEEDBACK
(1) There are two reasons:
(a) A sale is a reciprocal contract where delivery of the thing(s) sold and
payment of the price have to take place simultaneously, unless the
parties have agreed to the contrary. This is the position with regard
to a cash sale. In the case of a sale on credit, delivery takes place
before payment.
(a) Ownership passes with the real agreement and not when the contract
is concluded. If the parties do not expressly state their intention, their
tacit intention is taken as the basis for proceedings. In the case of a
cash sale this means that the parties have the intention to pass and
receive ownership, with delivery of the thing sold, only if the purchase
price has been paid. In the case of a sale on credit, however, owner-
ship will pass with delivery, unless the parties agree to the contrary.

(2) Failure by the seller to give undisturbed possession to the buyer amounts
to breach of his or her duty to deliver the thing sold. In most cases, the pur-
chaser first obtains undisturbed possession before he of she can be evicted.

54
 In York & Co (Pty) Ltd v Jones NO (1) 1962 1 SA 65 (SR) the purchaser
never received undisturbed possession of the farm, yet the court held that
he had been evicted. The executor of the joint estate of a husband and his
subsequently deceased wife (they were married in community of property)
exceeded his powers and sold a farm, which was an asset in the joint estate,
without first obtaining the consent of the executor of the wife’s estate. The
purchase price was paid and transfer was passed to the purchaser. The
purchaser never received undisturbed possession of the farm, because there
were people occupying the farm. The purchaser attempted to evict these
occupiers after giving notice of its intended action to the seller, but the seller
chose not to intervene. The buyer failed in this action because it failed to
prove that it did not have notice of the personal rights of the third parties to
occupy the farm. The seller’s defence (against a claim for eviction) was that
the buyer’s claim for eviction disclosed no good cause of action, because
the third parties had no real right, but only personal rights, to occupy the
farm, and that furthermore the third parties had no legal right to disturb the
purchaser’s possession. The court held that the purchaser could rely on the
judgment (failure to evict) as conclusive proof that the third parties’ claim
was unassailable and that the purchaser had been evicted.
Please note that there is a second possible ground for an action on the basis
of the facts of this case: failure to give undisturbed possession.
(3) Peter’s claim against Rachel is based on eviction. John’s threat of litigation
will qualify as a demand for the return of the car. Such a demand amounts to
eviction. Peter need not notify Rachel or conduct a virilis defensio if he can
prove that John’s right is unassailable. In this case, it is a given that John is
the owner. A voetstoots clause excludes the seller’s liability for latent defects
but not eviction. Peter will succeed in his claim and Rachel’s defences will
not be upheld. (PS: Have you considered whether the CPA applies to this
contract of sale?)
(4) According to the common law, it is possible for the seller to exclude the war-
ranty against eviction. However, the purchaser will always be able to claim
back the purchase price under these circumstances (why?) It is also possible
that the CPA is applicable here (why?) In terms of the CPA, it is not possible
to exclude the seller’s warranty against eviction (why?).

LPL4801/2 55
 8 STUDY UNIT 8
8 The duties of the purchaser

Fezile buys a fridge from XYZ Store for R2 000. XYZ Store does not undertake
to deliver the fridge to her house. She pays the price, but fails to collect the fridge.

OVERVIEW
Three of the duties of the purchaser, two of which are naturalia, are briefly discussed.

CONTENTS
8.1 INTRODUCTION
8.2 THE PURCHASER’S DUTY TO PAY THE PURCHASE PRICE
8.3 THE PURCHASER MUST TAKE DELIVERY OF THE THING
8.4 THE PURCHASER MUST REIMBURSE THE SELLER FOR ALL
NECESSARY EXPENSES INCURRED IN CONNECTION WITH
CUSTODY OF THE THING

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• explain the purchaser’s duty to pay the purchase price
•• explain the purchaser’s duty to take delivery of the thing sold
•• explain the purchaser’s duty to reimburse the seller for all necessary expenses
incurred in connection with custody of the thing
•• apply the rules discussed here to practical problems

8.1 INTRODUCTION
naturalia Apart from the consensual obligations between purchaser and seller, the purchaser
has certain obligations that are implied by law (naturalia), namely, to take delivery of
the thing and to compensate the seller for the custody of the thing. Of course, here
the parties are as competent to introduce arrangements to the contrary as elsewhere.
Although the duties of the purchaser do not warrant as much attention as the duties
of the seller, we mention the following briefly.

8.2 THE PURCHASER’S DUTY TO PAY THE PURCHASE PRICE

most important The duty to pay the purchase price is the purchaser’s most important duty.
duty
performance Payment of the price is performance of the obligation to pay the price. Payment must
be made in accordance with the terms of the contract; for example, the purchaser
may not tender a lesser amount, may not tender payment in instalments (unless this
has been agreed upon), and may not tender a greater amount and claim change. The

56
 STUDY UNIT 8: The duties of the purchaser

purchaser must pay the price with legal tender. The seller is entitled to cash, but the
purchaser may prove that it was their intention that a cheque or other negotiable
instrument should serve as legal tender. In this regard, evidence that the parties have
regularly used cheques in their previous negotiations will be admissible. Since the
court does not require very much evidence of such an express or tacit agreement, a
purchaser will not easily be taken by surprise.
by whom to whom Payment may be made by the purchaser him- or herself, his or her representative or
even by someone who is acting against the will of the purchaser, provided that the
intention is to discharge the debts of that particular debtor thereby. Payment must
be made to the seller or to a person who is authorised to receive payment on his or
her behalf. A person who is authorised to sell on behalf of the seller is not necessarily
authorised to receive payment. Payment to an unauthorised person is null and void
unless the benefit thereof has reached the seller.

interest In addition to the purchase price, the purchaser must also pay interest on the pur-
chase price when he or she is in default (mora debitoris).

simultaneous The general rule is that payment is made on delivery. Should a seller demand payment
performance without tendering delivery, he or she can be confronted with the exceptio non adimpleti
contractus, which is a defence available to a party to withhold performance until the
claimant has tendered proper performance, or has performed fully, provided that
the claimant has to perform first or simultaneously with the defendant – see the
general principles of the law of contract in this regard. Parties may naturally make
other arrangements and, as stated in Wehr v Botha 1965 3 SA 46 (A) at 60:
... it must be remembered that such a provision is a qualification of the normal
rule that a payment and delivery take place pari passu [simultaneously]. There
may be very good reasons in some cases for the seller to make sure at an early
stage that he will in any event be paid his price. Particularly is that so where
he, for instance, parts with any possession before transfer or does some other
act which may cause him prejudice if he is not eventually paid. It is always
open to the seller to acquire for himself advance security for the purchase
price and it may be politic in some cases for him to do so.

bank guarantee In this case the contract stipulated that the buyer of land would supply a bank
guarantee payable on registration for the balance of the purchase price. The court
held that the usual rule with regard to payment applied. The court continued (59):
In a normal case of this nature, in which no time is fixed within which the
stipulated guarantee must be provided, the date upon which the purchaser is
obliged to provide the guarantee depends upon when the seller will be able to
lodge with the Registrar of Deeds the necessary documents required to effect
the transfer; the purchaser is entitled to ignore any demand made before that
date without running any risk of being placed in mora.

(“Mora” refers to mora debitoris – delay on the part of the debtor in performing
timeously.)

Often the contract will state that the guarantee must be acceptable to the seller. In
such a case, the seller’s discretion to accept or reject the guarantee must be exercised
honestly and reasonably (Blake v Cassim and another NNO 2008 5 SA 393 (SCA) par
[21]–[22]; Koumantarakis Group CC v Mystic River Investment 45 Ltd and another 2008 5
SA 159 (SCA) par [39]–[49]).

LPL4801/2 57
receipt The purchaser who pays the purchase price is entitled to a receipt from the seller.

If the purchaser fails to pay the purchase price, the seller may claim it as well as
actio venditi damages in terms of the actio venditi.

8.3 THE PURCHASER MUST TAKE DELIVERY OF THE THING

The purchaser must take delivery of the thing (if it is a movable) at the place where
and the time when delivery must take place. If no time is mentioned, the purchaser
must take delivery of the thing within a reasonable time. If the thing must be delivered
according to instructions to be given by the purchaser, the purchaser must issue such
instructions. However, it is not the duty of the purchaser to separate the article that
he or she is to receive from other articles, to receive an article other than the one
specified, or to receive a thing that does not comply in a material respect with the
terms of the agreement. Furthermore, in the absence of an agreement to do so, the
purchaser need not accept delivery in instalments. If the purchaser receives more than
he or she is entitled to, and does not return the residue, he or she must compensate
the seller for the residue. The purchaser who neglects to take delivery of the article
falls into mora creditoris (delay on the part of the creditor in accepting performance),
which has been discussed under the general principles of the law of contract.

8.4 THE PURCHASER MUST REIMBURSE THE SELLER FOR ALL

NECESSARY EXPENSES INCURRED IN CONNECTION WITH
CUSTODY OF THE THING
The duty of custody of the thing rests on the seller, which means that he or she must
take all the necessary steps which a reasonable person would have taken to guard
against the destruction of, or damage to, the thing. However, expenses incurred by
the seller in terms of this obligation must be defrayed by the purchaser. Hence, the
seller even has a lien with which to enforce payment of such expenses. Refer to the
law of property to refresh your memory with regard to a lien.

ACTIVITY
1 Shaun buys a stove from XYZ Store for R3 000. When he tenders a cheque,
the cashier refuses to accept the cheque and insists that he pay in cash or
with a credit card.
(a) Advise Shaun.
(b) Suppose the cashier accepts payment by cheque. The cheque bounces.
Did Shaun become the owner of the stove? (Revise study unit 7 in this
regard.)

2 Reread the factual scenario at the beginning of this study unit on page 56.
Advise the store accordingly.

7 FEEDBACK
(1) (a) The price must be paid in cash, because the parties have not expressly
or tacitly agreed to the contrary.
   (b) This is a cash sale. Mere acceptance of a cheque as payment does
not indicate that credit has been given. The cheque is not honoured
and therefore ownership does not pass to Shaun.

58
 (2) As the purchaser, Fezile is obliged to take delivery of the thing. Because no
additional delivery arrangements have been agreed upon, Fezile needs to
go and pick up the fridge within a reasonable time. If she fails to do so, she
will be falling into mora creditoris, in which case, consider what the store’s
remedies would be. Also think about the effect that this will have on the
seller’s duty of custody if the CPA is not applicable. A related questions is,
what will the effect be if the CPA is, in fact, applicable? Please revise study
unit 4 above. Another interesting question is what effect this will have on
the passing of risk. This question will be explained in the next study unit.

LPL4801/2 59
 9 STUDY UNIT 9
9 The risk in contracts of sale

Tsakane buys a car from Bazaar Motors for R10 000; delivery to take place the next
day. That night lightning strikes at Bazaar Motors’ premises and the car is destroyed.

OVERVIEW
The purchaser remains liable to pay the purchase price even if the thing sold is ac-
cidentally destroyed after the sale has become perfecta.

CONTENTS
9.1 THE CONSEQUENCES OF THE RISK RULE
9.2 ACCIDENTAL MISFORTUNE AND BENEFIT
9.3 REQUIREMENTS FOR THE CONTRACT TO BECOME PERFECTA
9.3.1 The purchase price must be determined (or be capable of being
determined) by a simple calculation
9.3.2 The thing sold must be ascertained
9.3.3 The agreement must be unconditional
9.4 EFFECT OF DELAY OF THE SELLER ON THE RISK RULE
9.5 CIF, FOB AND FOR AGREEMENTS
9.6 THE RISK RULE AND THE CPA

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to
•• explain the consequences of the risk rule
•• explain how the risk rule differs from the normal rules regarding supervening
impossibility of performance
•• explain the relationship between the seller’s duty of custody, the res perit domino
rule and the risk rule
•• understand that the risk rule is an arbitrary measure
•• explain what accidental misfortune is
•• understand that the benefit follows the risk
•• set out what the benefits are
•• set out the requirements for a contract of sale to become perfecta
•• explain the application of the risk rule to certain types of sale
•• explain the consequences of the delay of the seller and the purchaser in giving
and receiving delivery of the thing sold
•• apply the rules discussed here to practical problems
•• explain and apply the new statutory risk rule as introduced by the CPA

60
 STUDY UNIT 9: The risk in contracts of sale

9.1 THE CONSEQUENCES OF THE RISK RULE

effect of risk rule Once the contract of sale is perfecta (perfect), the risk of any accidental misfortune that
may befall the thing rests on the purchaser. This means that the purchaser remains
obliged to pay the purchase price, even though the seller cannot deliver the thing
sold at all, or can deliver it only in a damaged condition. As we shall see, a contract
becomes perfecta before delivery of the thing to the purchaser has taken place.

exception to The rule relating to risk in sales is in conflict with the general principle regarding
supervening supervening impossibility of performance. In the case of mutual agreements, the
impossibility
supervening impossibility of one performance has the effect of extinguishing the
obligation to counter-perform. In the case of a contract of sale, however, this
does not happen and it is only the seller who is freed from his or her obligation
to deliver the thing by supervening impossibility of performance, while the
purchaser is still liable for payment of the purchase price. It should be noted
that the normal rules regarding supervening impossibility apply to contracts of sale
that are not yet perfecta.

res perit domino It should be noted that the purchaser carries this risk, even though the thing sold has
not been delivered to him or her and there is no possibility that he or she has already
become the owner of the thing – this is therefore not a case of res perit domino (the
owner carries the risk). It must also be kept in mind that the ownership of a thing
sold passes from the seller to the purchaser neither when the contract is concluded,
nor when the contract becomes perfecta, but only when delivery (movable property)
or registration (immovable property) occurs.

arbitrary measure According to Van den Heever JA in Pahad v Director of Food Supplies and Distribution
1949 3 SA 703 (A) at 709, the risk in contracts of sale is an arbitrary measure that
owes its origin to “an accident of history”, without there being any justification on
the grounds of fairness. This criticism seems to be appropriate and is in line with the
recent legal amendments that have been brought about by the CPA (see par 9.6 below).

custody As has been pointed out before (study unit 4), the seller must undertake custody of
the thing before delivery takes place (after risk has passed to the purchaser), and
exercise custody like a reasonable person. If he or she does not comply with this
obligation, he or she is liable for the full loss (id quod interest) of the purchaser.

9.2 ACCIDENTAL MISFORTUNE AND BENEFIT

misfortune If, however, the thing suffers some misfortune for which the seller cannot be held
liable, the purchaser suffers the damage. The nature of the misfortune and of the
thing (i.e. whether it is movable or immovable) are irrelevant. Voet 18 6 1 mentions
the death or wounding of a slave and the burning down or collapse of a house. The
damage caused to an immovable by an earthquake, the shipwreck of an ocean-going
vessel, storm or fire damage to a thing, or any other depreciation or destruction of
the thing sold is regarded as a misfortune to be endured by the purchaser. The ex-
propriation of land by the state, and taxes and other burdens imposed on the thing
are also included under this head. However, latent defects are not included.

benefit Not only any misfortune suffered by the thing but also any benefit accruing to
it (the commodum rei venditae) after the sale is perfecta is for the purchaser’s account.
Once the sale is perfecta, all separated civil and natural fruits, attachments, et cetera
accrue to the purchaser. The buyer is entitled not only to benefits that accrue to the
article, but also to benefits that take the place of the original benefit (the substitu-

LPL4801/261
 tory commodi) – for example, compensation and claims against third parties. In Van
Deventer v Erasmus 1960 4 SA 100 (T) the court held that the seller of a house is not
obliged to pay over to the purchaser insurance moneys received when the house
burnt down after having been sold. The insurance is not regarded as commodum, but
as a personal benefit to the seller. (It is no benefit, since the seller had to pay the
premiums to his insurer.)

9.3 REQUIREMENTS FOR THE CONTRACT TO BECOME

PERFECTA
The purchaser bears the risk as soon as the contract of sale is perfecta. The term perfecta
has a specific juristic meaning that is related to the transfer of risk. It is quite possible
to have a valid contract of sale that may give rise to rights and obligations, but that
is not yet perfecta as far as the risk is concerned. The generic sale, for example, is a
legally valid contract, but it is possibly not yet perfecta. The question that now arises
is: when can the contract of sale be considered perfecta? Normally a contract of sale
will be perfect as soon as it has been entered into, but there are exceptions. A sale is
perfecta (i.e. the risk has been transferred) if the following three requirements have
been complied with.

9.3.1 The purchase price must be determined (or be capable of being

determined) by a simple calculation
sale ad mensuram The purchase price is not ascertained in the case of a sale ad mensuram (sale of a
group of things at a price per unit). (Please revise par 2.2.3 above in this regard.)
However, it is capable of being determined by means of a simple calculation, since
a particular mass is sold at a price per unit, for example “this kiln at R500 per 100
bricks”, “this haystack at R100 per 100 kg bale” or “this land at R2 000 per hectare”.
In each of these cases, the purchase price can be ascertained only after the mass has
been weighed, measured or counted. The predominating opinion among writers on
Roman-Dutch law is that, until the measuring, weighing or counting takes place, the
risk of the destruction of the thing is carried by the seller. However, some writers
are of the opinion that, where the thing merely depreciates or becomes damaged,
the measuring, counting or weighing can still take place (other than when it has
been destroyed) and that in such a case the purchaser must carry the risk. What this
amounts to is that while the price is uncertain the seller bears the risk of destruction
of the article and the purchaser the risk of depreciation. This exception is under-
standable, but is subject to two points of criticism:
(1) It cannot be reconciled with the requirement that the price must be ascertained
before the risk is transferred.
(2) It also entails some complications: who is entitled to any benefit which may
accrue to the thing sold? The general rule is that the benefit follows the preju-
dice, but here there are two persons who could be involved and it will have
to be decided who is entitled to any benefits.

sale per The sale ad mensuram must not be confused with the sale per aversionem (purchase in bulk),
aversionem
where a thing is sold as a whole at a lump sum, for example “the contents of this kiln at
R1 000”. In such a case, the price of the thing has already been ascertained, and
thus the risk passes immediately.

62
 STUDY UNIT 9: The risk in contracts of sale

price not The same comment that was made concerning the sale ad mensuram holds good for
ascertained other contracts of sale where the price still has to be ascertained, for example where
the determination of the purchase price is left to a third party.

9.3.2 The thing sold must be ascertained

certain thing This requirement means that a certain thing must be capable of being pointed out
as the subject of the sale.

alternative sale In the case of a sale in the alternative, the thing is indefinite until the person who
must point out the article does so, or until only one remains after the other has
been destroyed. Voet 18 6 3 is of the opinion that if both alternatives are destroyed
simultaneously the purchaser still bears the risk for the one thing and must therefore
pay the purchase price. De Wet and Van Wyk (Kontraktereg 349 fn 221) point out
that, although this cannot be reconciled with the requirement that the thing must
be ascertained, it is defensible on the ground that it is certain that, no matter which
article would have been allotted to the purchaser, the object of the sale would have
been destroyed.

generic sale The thing is also indefinite in the case of a generic sale, that is, where a number of
articles of a particular class, grade or description are sold, for example twelve dozen
eggs or one hundred merino sheep. In such cases, the object of the sale is ascertained
only when appropriation or individualisation has taken place, for example where
the seller sets aside 100 bags of mealies (which conform to the description in the
contract) so that the purchaser can come and take delivery. In other words, as soon
as the articles which conform in terms of the correct quality and quantity have been
separated from the rest, the generic obligation is transformed into a simple obligation
where the seller’s performance is the delivery of a specific thing, that is, the article
which has been set aside. Before individualisation has taken place, the general rule
is that a genus cannot perish, but that a limited genus can.

unilateral or An important question related to individualisation is whether it can take place uni-
bilateral laterally, or whether it must be bilateral. In the last-mentioned instance, there must
be some measure of cooperation between purchaser and seller. The legal position
is uncertain at present. Our modern writers and case law are divided on the issue.
Bilateral individualisation is impractical where the parties live far apart and is also
contrary to the general rule that the debtor must point out the thing to be delivered
if the parties have not agreed that someone else should point it out. It seems that
unilateral individualisation should be required, coupled with a notice of individu-
alisation to the buyer. Unilateral individualisation implies a decision on the part
of the seller to appropriate the thing, coupled with an overt act aimed at making
his intention known, for example by setting aside, marking or counting. Where a
contract to sell indefinite things provides for delivery to a carrier, delivery to such
carrier of goods that comply with the requirements of the contract is sufficient in-
dividualisation for the purposes of the transfer of the risk. The requirement that an
overt act must have taken place is sufficient to ensure that the passing of the risk is
not coupled with fraud, since in such a case the passing of risk does not depend on
the seller. A notice to the buyer would enable the buyer to make arrangements to
obtain cover against the risk.

LPL4801/2 63
 9.3.3 The agreement must be unconditional
condition A condition is a term of a contract which renders the operation of the obligations
dependent on the occurrence of an uncertain future event. There are two types of
conditions. A suspensive condition suspends the full operation of the obligations
under the contract and renders operation dependent on the uncertain future event.
A resolutive condition renders the continued existence of the obligations or opera-
tion of the contract dependent on an uncertain future event.

Although this requirement seems to cover both suspensive and resolutive condi-
tions, it must be kept in mind that Roman-Dutch law only recognised suspensive
conditions. A sale subject to a suspensive condition which has not yet been fulfilled
is therefore not perfecta.

suspensive If the sale is subject to a suspensive condition which is not fulfilled, the seller bears
condition the risk of accidental destruction of or damage to the thing, that is to say he or she
cannot recover the purchase price from the buyer. If the condition is fulfilled, the
seller bears the risk of accidental destruction of the thing until fulfilment of the
condition, at which stage the risk passes to the buyer. In this case (fulfilment of the
condition), however, the buyer bears the risk of accidental damage from the time
the contract is entered into. This means that when the condition is fulfilled the seller
can deliver the damaged article and recover the full purchase price.

criticism It is not at all clear why this distinction between accidental destruction and ac-
cidental damage should be acknowledged today. It is contrary to the requirement
that a contract of sale must be unconditional before it is perfecta, and it also gives
rise to complications in determining, for instance, who is entitled to the benefit ac-
cruing to the thing.

resolutive If the sale is subject to a resolutive condition which is not fulfilled, the risk of both
condition accidental destruction of and damage to the thing passes to the buyer immediately
on conclusion of the contract, which means that in either case the seller is entitled
to the full purchase price. If the condition is fulfilled, the buyer bears the risk of
destruction of the thing until the moment of fulfilment, at which stage the risk reverts
to the seller (provided the thing is still in existence). If the condition is fulfilled, the
risk of accidental damage to the thing is, however, borne by the seller from the mo-
ment of conclusion of the contract, which means that the buyer can return the thing
in its damaged condition and is then entitled to repayment of the full purchase price.

pactum In this regard, the pactum displicentiae (cancellation agreement) must be considered.
displicentiae According to the pactum displicentiae, the buyer acquires the right to return the thing
to the seller within a certain or reasonable period of time if he or she is no longer
satisfied with it. But who bears the risk if the thing is destroyed in the meantime? In
Fitwell Clothing v Quorn Hotel 1966 3 SA 407 (RA) it was held, with reference to Moyle,
that the risk is the seller’s. Such a pactum displicentiae could, of course, be interpreted
suspensively, in which case the risk normally rests with the seller. In most cases,
however, the effect of this pactum is resolutive, and then there is no good reason to
depart from the ordinary rule that the risk of destruction passes to the buyer. This
view is also adopted by some modern writers. It is a different matter when the thing
is merely damaged: then the buyer may still return the thing, and if the damage is
severe, he or she will probably do so. In effect, the seller bears the risk of such damage.
sales “on approval” In Florida Rand Shopping Centre (Pty) Ltd v Caine 1968 4 SA 587 (N) the court held that
if the purchaser does not approve of the goods in the case of sales “on approval”,

64
 STUDY UNIT 9: The risk in contracts of sale

there is no sale, because the condition is not fulfilled. Some modern writers see this
as an indication that the usual sale “on approval” is suspensively conditioned and
that the uncertain future event is the approval of the buyer. Others are of the view
that such sales can also be subject to resolutive conditions.

9.4 EFFECT OF DELAY OF THE SELLER ON THE RISK RULE

The delay of the seller influences the transfer of the risk. If the seller is in mora as
regards delivery of the thing (mora debitoris – delay of the debtor), he or she must
carry the risk from the moment he or she fell into mora (if he or she is not car-
rying the risk in any case), unless he or she is able to prove that the thing would have
been damaged even if he or she had delivered in time. The purchaser’s delay in regard
to taking delivery of the thing (mora creditoris – delay of the creditor) does not affect
the risk: the seller’s duty of custody is merely lessened thereby (see study unit 4).

9.5 CIF, FOB AND FOR AGREEMENTS

naturalia The risk is one of the naturalia of contracts of sale. As with other naturalia of the
contract of sale, the parties may introduce another arrangement by means of an
agreement to the contrary, provided that their intention is clearly apparent.

CIF, FOR and The existence of such an intention cannot actually be deduced merely from the fact
FOB agreements that the seller has undertaken to deliver the goods at a place other than that where
the parties found themselves at the time the agreement was entered into. With ref-
erence to a statement by Van Leeuwen (CF 1 4 19 5), we find the view in our case
law that a CIF (cost, insurance and freight) agreement is an agreement subject to a
suspensive condition, and that the risk passes only on actual delivery. It is uncertain
what is meant by a suspensive condition here, except that it is certainly not a genuine
suspensive condition. As regards an FOR (free on rail) agreement, it has also been
held that the agreement is conditional and that the risk passes only when the goods
have, in fact, been loaded free on rail. Hamman (Die risiko 281) is of the opinion that,
in the case of CIF, FOB (free on board) and FOR agreements, one must construe
a tacit agreement that the seller will carry the risk until the goods have been placed
on board or on rail.

risk passes A better solution can be achieved by another approach. Although the thing must be
delivered elsewhere, this does not affect the question whether the contract is perfecta
or not, and the risk passes immediately the contract has been entered into. However,
duty of custody the seller’s duty of custody continues to exist until he or she (or his or her representa-
tive) has delivered the thing to the purchaser (or his or her representative). In the
meantime, the care that the seller or his or her representative (e.g. the railways) must
exercise in respect of the thing must be that of a reasonable man. This conclusion
is supported by Tiran v Eales & Harris 1916 CPD 529 where the court held that the
seller’s duty of custody continues until delivery, although unfortunately nothing was
said about the passing of the risk. The judge mentioned the following example: A
grocer carries out a customer’s order by sending one of his employees with 5 kg of
tea – he therefore undertakes to deliver at another place. At the client’s house the
employee hands over only 3 kg of tea. The judge stated that the onus rests on the
grocer to prove that his representative was not negligent:

In my opinion, if there was any loss in the interval, it lies upon the grocer and his
agent, the boy, to prove that they have done everything to preserve the 5 [kg] of

LPL4801/2 65
 tea, and that the diminution to 3 [kg] was something for which they were not in
any way liable.

It follows by implication that if the grocer has been careful he will not be liable and
that the risk of accidental destruction is carried by the purchaser. Unfortunately, no
decision was required on this point. This case was followed in Western Produce Co v
Cedarmount Store 1929 TPD 741. In the light of what can be deduced from these two
decisions, coupled with a clear judgment in Thomas & Co v Whyte and Co 1923 NPD
413 (which was followed by Wright v Corticas BCM Ltd 1948 4 SA 456 (C)) that in the
case of CIF agreements the risk passes immediately, it would appear that the posi-
tive law is in fact as has been expounded. In any case, where the seller takes it upon
him- or herself to transport the article to another location, he or she may also be
liable as a carrier. Then the onus rests on him or her to prove that the harm which
has befallen the thing was caused by casus fortuitus (chance), damnum fatale (unavoid-
able loss) or vis major (act of God). If he or she can prove that the harm falls under
these heads the risk is carried by the buyer.

9.6 THE RISK RULE AND THE CPA

Please read and make a detailed study of Study Guide 3, paragraph 19.4. It is of ut-
most importance that you fully grasp the important change that section 19(2)(c) has
brought about in the transfer of risk in contracts that are subject to the CPA. In short,
risk will pass in these instances where the purchaser has accepted delivery of the
goods. You should be able to discuss whether it is possible for parties to amend the
risk rule between themselves. You will also note that some writers even go so far
as to say that the common law risk rule needs to be aligned with the statutory risk
rule, as the common law risk rule is outdated and unfair.

ACTIVITY
1 John lets his flat to Mary for R1 500 per month. Thereafter, John sells his
flat to Mike for R150 000 on condition that Mike sells his (Mike’s) car within a
month. You may assume that the contract of sale complies with the formali-
ties prescribed for contracts of sale of land. Please assume that the CPA is
not applicable to this agreement.
(a) Can John claim payment of the purchase price from Mike if the flat is
damaged by lightning, before Mike can sell his car? Suppose that Mike
managed to sell his car within a month.
(b) Suppose Mike manages to sell his car within two weeks, and that the
flat is registered in Mike’s name after two months. Can Mike claim pay-
ment from John of the two months’ rent which John received from Mary?

2 Eve, the owner of XYZ Garage, sells a new Fiat Uno Mia to Sam on 3 March
for R50 000. They further agree that delivery of the car and payment of the
full amount will take place on 10 March at Sam’s home. Assume that this oc-
curred before the commencement of the CPA.
(a) Eve marks one of the Fiat Uno Mias in her showroom “Sold to Sam”
and informs Sam that she has done so. On 5 March, a fire caused by
lightning destroys the Uno Mia marked “Sold to Sam”. Will Eve’s claim
for payment of the R50 000 succeed?

66
 STUDY UNIT 9: The risk in contracts of sale

(b) Would it have made any difference to your answer to (a) above if the
events had taken place on 4 March before Eve could mark one of the
cars in the showroom “Sold to Sam”?
(c) Would it have made any difference to your answer to (a) above if the fire
had broken out on 12 March, at which time Eve had not yet delivered
Sam’s car?
(d) Would it have made any difference to your answer to (a) above if Eve
had sold one of the ten new Fiat Unos standing in the showroom to
Sam and all the cars in her showroom had been destroyed by the fire?

3 Reread the factual scenario at the beginning of this study guide on page 60
Tsakane is worried because the owner of the garage has informed him that
he will still be liable for the purchase price. Advise Tsakane in full. You can
assume that this occurred after the commencement of the CPA.

8 FEEDBACK
(1) (a) Yes. This question deals with the risk rule. The damage caused by
lightning is accidental loss. John will only be able to claim payment
of the purchase price if Mike carries the risk of damage to the flat.
The price and the thing sold are both ascertained. The contract of
sale is, however, subject to an unfulfilled suspensive condition. The
selling of Mike’s car is an uncertain future event. Mike carries the risk
of damage to the thing, as the suspensive condition is later fulfilled.
    (b) No, Mike will not be able to claim the full two months’ rent, but only
the rent for one-and-a-half months. Rent is a civil fruit and a benefit
which passes to the purchaser as soon as the contract of sale is per-
fecta. The contract becomes perfecta when the suspensive condition
is fulfilled after two weeks.

(2) (a) There is no certainty about this. The destruction is accidental loss.
The question is whether the risk has passed to Sam. The purchase
price has been ascertained and the contract is not subject to any
condition. This is a generic sale, because a genus (a new Fiat Uno
Mia) has been sold. A genus is not an ascertained thing. The ques-
tion is therefore whether the thing sold has been individualised. It is
uncertain whether our law requires unilateral (with or without notice
to the purchaser) or bilateral individualisation. If a bilateral individuali-
sation is required, it is clear that the car has not been individualised,
because the car has been individualised unilaterally with notice to the
purchaser, and therefore the contract will not be deemed perfecta.

If individualisation has indeed taken place, Eve will be able to claim
the price without delivering a Fiat Uno Mia.

If individualisation has not yet taken place, Eve will not be able to claim
the price without delivering a Fiat Uno Mia, because the rule is that
a genus cannot perish and the contract of sale thus does not come
to an end through supervening impossibility.
(b) Yes it would. It is clear that individualisation has not taken place; the
thing has not been ascertained and the contract is not perfecta. Eve
cannot claim the price without delivering a Fiat Uno Mia. The contract
does not come to an end, because a genus cannot be destroyed.
(c) Yes it would, if the contract became perfecta in (a). The risk would
revert back to Eve, because she fell into mora debitoris by failing to
deliver the car to Sam at his home on 10 March. If the contract had

LPL4801/267
 not become perfecta in (a), the position would remain the same as
in (b).
    (d) No, it would not make a difference if individualisation has taken place
in (a). If individualisation has not taken place in (a), it would make
a difference. As in (a), the normal consequences of supervening
impossibility apply, but now a limited genus (the ten Fiat Uno Mias
in Eve’s showroom) has been destroyed. Eve is therefore freed from
the delivery of a Fiat Uno Mia, but Sam is also freed from paying
the price. The contract of sale therefore comes to an end through
supervening impossibility of performance and Eve cannot claim the
price.

NB: If the CPA were applicable, what would the situation be?

(3) The CPA is applicable to the agreement (Why?). Apply the risk rule in terms
of the CPA.

68
 BIBLIOGRAPHY

Bradfield G & Lehmann K Principles of the law of sale and lease 3rd ed (Juta Cape Town
2014)
De Wet JC & Van Wyk AH Die Suid-Afrikaanse kontraktereg en handelsreg vol 1 5th ed
(Butterworths Durban 1992)
Hackwill GRJ Mackeurtan’s sale of goods in South Africa (Juta Cape Town 1984)
Hamman EM Die risiko by die koopkontrak in die Suid-Afrikaanse reg (Van Schaik
Pretoria 1938)
Kerr AJ The law of sale and lease 3rd ed (LexisNexis Butterworths Durban 2004)
Glover G Kerr’s law of sale and lease 4th ed (LexisNexis 2015)
Mostert DF Uitwinning by die koopkontrak in die Suid-Afrikaanse reg (LLD Thesis 1965)
Mostert DF Joubert DG & Viljoen G Die koopkontrak (Butterworths Durban 1972)
Nienaber PM “Enkele beskouinge oor kontrakbreuk in anticipando” 1963 THRHR 19
Olivier P “Die aedilisiese aksies weens verborge gebreke” 1963 THRHR 173
Pothier RJ A treatise on the contract of sale vol 2 (Charles C Little & James Brown
Boston 1839)
Van Rensburg ADJ & Treisman SH Practitioner’s guide to the Alienation of Land Act
(Butterworths Durban 1982)
Van Warmelo P Vrywaring teen gebreke by koop in Suid-Afrika (Luctor et Emerge Leiden
1941)
Voet J Commentarius ad pandectas (Juta Cape Town 1902)

LPL4801/269
 Department of Private Law

LPL4801
Statutory Regulation regarding the
Law of Sale and Lease
Study Guide 3

Prof Luanda Hawthorne

Mrs Helen Trytsman
Mrs Hanri du Plessis

University of South Africa, Pretoria

© 2016 University of South Africa

All rights reserved

Printed and published by the

University of South Africa
Muckleneuk, Pretoria

LPL4801/3/2017–2019

70508895

InDesign

HSY_Style
 Page

CONTENTS

Page

FOREWORD v
Study unit 1: Formalities required for the conclusion of a binding contract of sale 1
Study unit 2: Alienation of Land Act regarding the sale of immovable property on credit 15
Study unit 3: Introduction to consumer credit 23
Study unit 4: Application of the NCA in terms of section 8 of the NCA 26
Study unit 5: Consumer credit policy (ss 60–66 of the NCA) 35
Study unit 6: Regulatory institutions 40
Study unit 7: Registration of credit providers 42
Study unit 8: Credit marketing (ss 74–77 of the NCA) 45
Study unit 9: Over-indebtedness and reckless credit 48
Study unit 10: Unlawful agreements and provisions 55
Study unit 11: Pre-agreement requirements (s 92 of the NCA) 58
Study unit 12: Rate of interest, fees and charges (s 100 of the NCA) 65
Study unit 13: Alteration of credit agreements (ss 116–120 of the NCA) 71
Study unit 14: Rescission and termination of credit agreements (ss 121–123 of the NCA) 73
Study unit 15: Early payments and early settlement 76
Study unit 16: Enforcement of credit agreement 78
Study unit 17: Offences 81
Study unit 18: General background, purpose, scope and application of the CPA 83
Study unit 19: The consumer’s right to choose 91
Study unit 20: The consumer’s right to disclosure and information 98
Study unit 21: The consumer’s right to fair and honest dealing 101
Study unit 22: The consumer’s right to fair, just and reasonable terms and conditions,
and the court’s powers to enforce these rights 107
Study unit 23: The consumer’s right to fair value, good quality and safety 117
BIBLIOGRAPHY 125

HSY3704/1 (iii)
(iv)
 1 FOREWORD

STATUTORY REGULATIONS REGARDING CERTAIN

CONTRACTS OF SALE AND LEASE
This section of your study material deals with statutory regulations regarding certain
contracts of sale and lease: The Alienation of Land Act 68 of 1981, the National
Credit Act 34 of 2005 and lastly, but most importantly for purposes of this module,
the Consumer Protection Act 68 of 2008. We first discuss the Alienation of Land
Act 68 of 1981 (study units 1 & 2) and, thereafter, the National Credit Act 34 of
2005 (study units 3–17). Lastly we give you an outline of the Consumer Protection
Act 68 of 2008 (study units 18–23).

Wherever you find yourself in the legal profession one day, you will need a thorough
understanding of this legislation. You need to understand how it has changed the
existing common law in the field of sale and lease. More importantly, you need to
be able to integrate the provisions of the legislation with the common law to enable
you to give sound legal advice to your clients.

You need to understand that common law and legislation cannot be studied or applied
in isolation. The activity below illustrates some of the “integration challenges” a
lawyer faces every day in practice.

The following activity illustrates the importance of integrating all legal sources to
solve a legal problem:

ACTIVITY

Your client builds high density housing in Pretoria and comes to see you
about a development that he built two years ago. Suddenly all the owners are
complaining about large cracks appearing on the inner walls of the town houses.
Your client has received threats from some of the owners that they will hold
the developer liable for the structural defects. Your client feels that he did not
hide any defects from the initial buyers of the town houses, and that all the
deeds of sale contained the voetstoots clause. Note that the developer did
not sell the town houses on credit to the owners. You now need to give legal
advice to your client.

FEEDBACK
• The law of sale is applicable here and, more specifically, the aspects dealing
with latent defects. You could advise that it is usually possible for a seller to
exclude the common law warranty against latent defects with a voetstoots
clause, provided that the seller does not deliberately conceal a latent defect.
But in drafting your legal opinion, this is not where you should stop. You have
to ask yourself, is there any legislation applicable that could influence
this legal position?

LPL4801/3 (v)
FOREWORD

• First of all, you need to determine what legislation is applicable to and appropriate
for the given set of facts. After you have studied this study guide in conjunction
with study guides 1 and 2, you will be able to conclude that the National Credit
Act 34 of 2005 is not applicable, because the developer didn’t sell the town
houses on credit. Although the Alienation of Land Act 68 of 1981 is applicable
to the sale of town houses, it is not relevant here because this is not a credit
sale and the town houses have already been transferred to the respective
buyers’ names. After studying this guide, you will, however, realise that the
Consumer Protection Act 68 of 2008 is applicable, because a town house is
sold by a supplier to a consumer in the normal course of business. You should
further advise that, because of various provisions in this Act, it is no longer
possible for a seller to exclude the warranty against latent defects by means of a
voetstoots clause, and that the liability of the seller/supplier has been extended
immensely by this Act. (Many building regulations and other legislation might
also be applicable, but will not be explained here for purposes of this module.)
• What we are trying to illustrate at this stage, is not a detailed answer to the legal
problem, but the point that your legal advice would have been incomplete if you
failed to integrate the common law with the relevant legislation. Although we
have briefly indicated in study guides 1 and 2 where the aforesaid legislation
has amended the common law, we advise you to keep this critical and analytical
stance displayed in the activity feedback above, when working through study
guides 1 and 2, and to incorporate the contents of this study guide 3 where
relevant.

(vi)
 THE ALIENATION OF LAND ACT 81 OF 1961

1 STUDY UNIT 1
Formalities required for the conclusion of a
binding contract of sale

Xavier buys a house from Tsepiso for R500 000. The contract is not expressed in
writing. He realises that he does not want to buy the house any more, but he has
already paid a R50 000 “non-refundable” deposit. Does he have any remedy?

OVERVIEW
The statutory formalities for the conclusion of a binding contract of sale are discussed
or briefly referred to in this study unit. The Alienation of Land Act 68 of 1981 is the
most important legislation in this regard.

CONTENTS
1.1 INTRODUCTION
1.2 FORMALITIES PRESCRIBED FOR CONTRACTS IN TERMS OF
WHICH LAND OR INTERESTS IN LAND ARE BOUGHT AND SOLD
1.2.1 The types of contract to which the provisions of the ALA apply
1.2.2 The concept of “land”
1.2.3 “Deed of alienation”
1.2.4 The contents of the deed of alienation
1.2.4.1 The identity of the parties
1.2.4.2 The essentialia of the alienation
1.2.4.3 Other material terms
1.2.4.4 The signatures of the parties or their agents
1.2.5 Rectification
1.2.6 Alienation through an agent (representative)
1.2.6.1 Definition of “agent”
1.2.6.2 Manner of appointment of agent and ratification of unau-
thorised agents
1.2.7 Agents and representatives of companies
1.2.8 Sales of land by public auction
1.2.9 The variation and revival of deeds of alienation
1.2.10 The “cooling-off” right of the prospective purchaser, or purchaser,
to revoke the offer or terminate the contract of sale
1.2.11 The consequences of non-compliance with formalities
1.2.11.1 Failure to comply with section 2(1) of the ALA
1.2.11.2 Failure to comply with section 2(2A) of the ALA
1.3 FORMALITIES PRESCRIBED FOR THE SALE OF LAND ON
INSTALMENTS

LPL4801/3 1
 LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• understand that formalities are only one of the requirements for a valid contract
• explain the formalities prescribed by the Alienation of Land Act 68 of 1981
• determine the types of contract the provisions of the Alienation of Land Act
apply to
• describe the concepts of “land” and “deed of alienation”
• describe the contents of the deed of alienation that must appear in any document
that purports to deal with the alienation of land
• describe the requirements for alienation through a representative
• determine who are representatives for the purpose of the alienation of land
• determine who are the representatives of companies
• explain the formalities for sales of land by public auction
• discuss how the variation and revival of deeds of alienation can take place
• set out the requirement that the contract must refer to the “cooling-off” right of
certain purchasers or prospective purchasers
• discuss the consequences of non-compliance with formalities
• apply the rules discussed here, to practical problems

1.1 INTRODUCTION
requirements for a The requirements of a valid contract of sale in order to give rise to rights and duties,
valid contract are the well-known requirements for the validity of any contract, namely, capacity to
act, consent, possibility of performance, lawfulness and compliance with formalities.
Most of these requirements have been dealt with at length in the course on the general
principles of the law of contract, and we shall, therefore, not repeat those discussions
here. In this chapter, we deal only with the formalities that are prescribed by
statute in respect of contracts of sale of land or interests in land.

1.2 FORMALITIES PRESCRIBED FOR CONTRACTS IN TERMS OF

WHICH LAND OR INTERESTS IN LAND ARE BOUGHT AND
SOLD
sections 2 and 3 Since the beginning of the 20th century, formal requirements for contracts for the sale
of land have been prescribed by current statute. Sections 2 and 3 of the Alienation
of Land Act 68 of 1981 (hereafter referred to as “the ALA” in this study unit), as
amended, currently regulate the formal requirements. These sections read as follows:

S 2(1) No alienation of land after the commencement of this section shall, subject to
the provisions of section 28, be of any force or effect unless it is contained
in a deed of alienation signed by the parties thereto or by their agents
acting on their written authority.

S 2(2) The provisions of subsection (1) relating to signature by the agent of a party
acting on the written authority of the party, shall not derogate from the
provisions of any law relating to the making of a contract in writing by a
person professing to act as agent or trustee for a company not yet formed,
incorporated or registered.

S 3(1) The provisions of section 2 do not apply to the sale of land by public auction.

2
 STUDY UNIT 1: Formalities required for the conclusion of a binding contract of sale

S 3(2) If, in terms of a sale of land by public auction, the purchase price or any other
charges is or are payable by the purchaser in more than two instalments over
a period exceeding one year:

(a) the provisions of this Act apply to that sale as if it were a sale under a
contract;
(b) in such application of section 6, the conditions of sale determined in
terms thereof shall be read in public immediately before the auction; and
(c) the seller shall forthwith after the auction furnish the purchaser with a
copy of the contract, failing which the purchaser may cancel the sale.
purpose The purpose of the ALA is to attain certainty concerning the provisions of the
contract and to avoid disputes and possible malpractices.

1.2.1 The types of contract to which the provisions of the ALA apply
deed of alienation Every alienation of land must be contained in a deed of alienation. A “deed of
alienation” is defined in section 1 of the ALA as “a document or documents under
which land is alienated”, and “to alienate (alienation)” is defined as “to sell, exchange
or donate, irrespective of whether such sale, exchange or donation is subject to a
suspensive or resolutive condition”.

conditional The reference to conditional contracts was probably inserted to counterfeat of the
contracts view often expressed by our courts (Soya (Pty) Ltd v Tucker’s Land and Development
Corporation (Pty) Ltd 1981 3 SA 314 (A)) that a contract of sale that is subject to a
suspensive condition does not become a contract of sale until the condition has been
fulfilled and, therefore, does not have to be in writing.

exchange “Exchange” in the definition of “alienate” has a wider meaning. As a result, any
contract in terms of which one party undertakes to deliver land while the other
undertakes to deliver an asset in a person’s estate as counter-performance, will
qualify as a contract of exchange (Hoeksma v Hoeksma 1990 2 SA 893 (A) 897, Van
Rensburg & Treisman Alienation of Land Act 33). Once the counter-performance is
money, there is, of course, a contract of sale.

1.2.2 The concept of “land”

ordinary meaning In terms of the definition, “land” (in s 1) is, in the first place, to be given its ordinary
(common law) meaning, but also includes the following:
additional
meaning
(1) any unit as defined in the Sectional Titles Act 95 of 1986,
(2) any right to claim transfer of land,
(3) any undivided share in land,
(4) any interest in land (i.e. any interest other than a right or interest registered
or capable of being registered in terms of the Mining Titles Registration Act
16 of 1967), and
(5) initial ownership referred to in section 62 of the Development Facilitation
Act 67 of 1995.
Any contract of sale, exchange or donation in terms of which a piece of land, a unit,
the right to claim transfer of land, an undivided share in land or a real right to land
is alienated must, therefore, be contained in a deed of alienation.

LPL4801/3 3
 1.2.3 “Deed of alienation”
document(s) In terms of section 2(1) of the ALA, any alienation of land must be contained in a
deed of alienation. A deed of alienation may consist of more than one document.

1.2.4 The contents of the deed of alienation

required contents Section 2(1) of the ALA requires every alienation of land to be contained in a deed
of alienation, which must be signed by the parties thereto or by their agents acting
on their written authority. In effect, the following must appear in any document that
purports to deal with the alienation of land:

(1) the identity of the parties,

(2) the essentialia of the contract in question, whether it be a contract of sale,
exchange or donation,
(3) the other material terms on which the parties have agreed, and
(4) the signature of every party to the contract, or that of his/her agent.

1.2.4.1 The identity of the parties

apparent from The identity of the parties must be apparent from the deed of alienation, which
deed means that it must be clear from the document who the alienator/alienor (e.g. the
seller) of the land is and who the alienee (e.g. the purchaser) is. Consequently, if one
has to consult sources other than the deed of alienation to establish either who the
alienator or who the alienee is, the alienation will be void.

contract with each It is also not sufficient that one person has signed the document as alienator (e.g. as
other seller) and another has signed it as alienee (e.g. as buyer). It must also be evident from
the document that the parties intended to contract with each other. Therefore, an
alienation will also be void if it emerges from the deed of alienation that the offer
that it embodies was accepted by somebody other than the offeree: If P makes a
written offer to S to buy a farm which he (wrongly) believes belongs to S, and the
offer is “accepted” by the true owner, O, who affixes his signature to the document
as “seller”, no valid contract will come into existence (Hersch v Nel 1948 3 SA 686
(A); Baker v Crowie 1962 2 SA 48 (N). See, however, Godfrey v Paruk 1965 2 SA 738
(D)). However, the document may make it clear that the offer is, in fact, intended
for (made to) someone other than the person to whom it is addressed, and that the
latter’s only function is to transmit the offer to the person for whom it is intended.
One may thus address a written offer to buy a property to an estate agent, but indicate
that it is one’s intention that she/he should submit the offer to the owner of the land
for acceptance. In such a case, the owner can validly accept the offer, which is, in
fact, intended for him/her (Hill v Faiga 1964 4 SA 594 (W) 597).

1.2.4.2 The essentialia of the alienation

meaning of As you already know, an alienation of land may take the form of a sale, exchange or
essentialia donation. Therefore, for a deed of alienation to be valid, it must embody the essentialia
of a contract of sale, exchange or donation. The essentialia of a contract of sale are
discussed in study guide 2, study unit 2. In short, there must be an undertaking to
transfer land against the payment of the purchase price.

performance not That a deed of alienation must embody the essentialia of one of the three types of
clear contract is self-explanatory. If it does not appear from a purported deed of alienation

4
 STUDY UNIT 1: Formalities required for the conclusion of a binding contract of sale

that there has been a sale, exchange or donation of land, there can have been no
valid alienation, and, consequently, there is no valid deed of alienation. The real
problem that arises is usually to determine whether the performance to which
the parties intended to bind themselves, has been set out clearly enough in
the deed of alienation to comply with the formal requirements.

description of land As far as the land that is being alienated is concerned, the general principle is that
such land must be described in the deed of alienation in such a manner that it is
capable of objective identification, that is, without recourse to extrinsic evidence
such as evidence relating to their negotiations to establish the real intention of the
parties. The test was applied by the court in Clements v Simpson 1971 3 SA 1 (A) 7.

objective Objective identification can be achieved either:

identification
• by means of a description that is in itself sufficiently definite to be capable of
being related to a particular entity of immovable property, or
• by indication of a person (who may be either one of the parties or a third person),
who has the right to select a particular portion of property from a larger whole,
or has the right to select one of a number of portions, for example, one erf out
of all the erven in a township.
title deed It will obviously always be safer to rely on the description of the land that
appears in the title deed, for example, “Erf 1435 Wierdapark Extension 1,
examples
Registration Division IR, Province of Gauteng, measuring 2016 (two thousand
and sixteen) square metres”. The following descriptions have, however, also been
accepted as sufficient to identify the land in question:

• a reference to the physical location of the property, for example, its street address,
• a reference to the popular name of the entity, for example, “the farm Blaaubank”
or “Ideal Bungalow, 1st Beach, Clifton”,
• a reference to an objectively determinable relationship between the land and a
particular person, for example, “X’s farm”,
• a reference to a plan or diagram on which the boundaries of the land are marked,
• a description that refers to existing beacons,
• a reference to a description of the land, which is contained in a particular deed of
transfer, or even in another contract—the description referred to is then regarded
as having been incorporated into the deed of alienation by reference, and/or
• the reference to “the farm property” in an option to purchase in a lease agreement,
where the farm can be identified from the rest of the lease agreement read with
the title deed (Van Aardt v Galway 2012 2 SA 312 (SCA).
not in deed of Identification of the land cannot, however, depend upon an agreement that is not
alienation reflected in the deed of alienation, or, obviously, on an agreement still to be entered
into. Consequently, formulations such as “the portion pointed out to the buyer” or
“the portion that was agreed upon” are not sufficient.

counter- Not only the land that is being alienated must be identifiable by reference to the
performance deed of alienation, but also the nature and extent of any counter-performance that
is to be rendered (e.g. a sum of money or a thing) must also appear from the deed
of alienation itself, or be capable of determination by reference to objective criteria
reflected in the deed of alienation. Once again, extrinsic evidence is inadmissible to
prove the intention of the parties.

LPL4801/3 5
 1.2.4.3 Other material terms
material terms in In terms of section 2(1) of the ALA, all the material terms of a sale, exchange or
writing donation must be contained in a deed of alienation, that is, such terms must be in
writing. This means that all the material terms must be contained in the document.
It is a further requirement that the terms in question must appear in the document
when it is signed. A deed of alienation is, therefore, not valid if it is signed when
blank and completed at a later stage.

unclear what are Although it is unclear what exactly is meant by “a material term”, it is at least certain
material terms: that all the essentialia of the alienation are material terms, as discussed above. A
essentialia
document that contains no more than the essentialia of a contract of sale, exchange
or donation, and has been signed by the parties, will generally constitute a valid deed
of alienation if the parties intended, for their agreement, to have no other material
terms. All the requirements for a valid contract (consensus, possibility of performance,
etc) should also be complied with. In such a case, the duties of the parties are partly
determined by the naturalia of the contract that they have entered into.

incidentalia: two In most cases, however, parties do not want to have their relationship determined
approaches solely by operation of law (i.e. in terms of the naturalia of the contract in question).
Instead, they prefer to spell out the incidental terms (incidentalia)of their relationship
themselves and, most importantly, they wish to change some of the naturalia of a
contract of sale. Apart from the essentialia upon which they agree, they, therefore,
also agree on a number of incidentalia.

Two approaches can be discerned with regard to the question as to which

incidentalia should be regarded as material terms, namely, the broad and the
narrow approach.

broad approach: all A. The broad approach regards all the terms on which the parties have agreed
terms agreed to as the material terms of their contract and includes every term relating to
the following:

• the content and characteristics of each performance that is to be rendered,

• when, where and how the performance is to be rendered,
• the cooperation required by each person regarding the performance by the
other, and
• the remedies available to the parties in a case of breach of contract, as well
as the requirements for the enforcement of the remedies.
test In Jones v Wykland Properties 1998 2 SA 355 (C), the court formulated the following
test to determine whether a term is material:

• Did the parties apply their minds to the term?

• Did they agree, either expressly or tacitly
(a) that the term should form part of their contract and
(b) be binding on them?
According to this approach, if the answer is “yes” to the above questions, and
the parties omitted to insert such a clause in the contract, the contract will
be void for non-compliance with statutory requirements.

information only In terms of this broader approach, a non-material term is thus one that contains
information only and is not intended to bind the parties, for example, an address.

6
 STUDY UNIT 1: Formalities required for the conclusion of a binding contract of sale

restrictive B. In terms of the more restrictive approach, not all the terms the parties have
approach agreed to are material. All essentialia are regarded as material, but other terms
should be subjected to an objective test of materiality. The court held in
Trustees, Mitchell’s Plain Islamic Trust v Weeder [2001] 2 All SA 629 (C) that the
materiality of terms is an objective test by the court, although in some borderline
cases the court will make a value judgment.

Examples of material terms, according to the courts, are the date of registration
or occupation, the contractual duty to renovate the premises or render them in a
certain condition prior to transfer, and terms fixing liability for certain costs, such
as transfer or survey costs.

It is, however, readily conceivable that there will be cases where the materiality of
a particular term may be moot. In determining in such borderline cases whether a
particular term is material or not, the court will consider the object of the formalities
legislation and also weigh the apparent importance of the term in the context of
the detailed scheme of the particular agreement under consideration (Mitchell’s Plain
Islamic Trust).

In the above-mentioned case, the court regarded a term determining which of the
parties had the power to appoint the conveyancer as non-material, which term could,
therefore, be informally varied between the parties. The court decided that “in the
general scheme of the agreement” the identity of the conveyancer was not material,
and allowed the informal variation of such term.

1.2.4.4 The signatures of the parties or their agents

mark In Van Niekerk v Smith 1952 3 SA 17 (T), the court considered the meaning of a
“signature” and concluded that the full name and surname is not required to be
written, but that any “mark” representing the contracting party, and made by that
party, will suffice. Therefore pencil signatures, signatures by initials or by means of a
stamp or by a mark, or by a party’s writing below a printed heading, are all sufficient.

affi xing The ALA is silent on where in the agreement the signatures should appear in the
document. They may, therefore, apparently be affixed anywhere as long as it is clear
that they were intended to cover the whole document. Normally the parties sign at
the end of the agreement. If the deed of alienation consists of more than one page,
it is not necessary (although it is advisable) that each page be signed or initialled. If
the seller inadvertently signs in the space left for the purchaser’s signature, and vice
versa, the deed can be rectified, because prima facie there is a valid contract (see below
at 1.2.5 for rectification). However, a person, who signs a deed of alienation as an agent
on behalf of another, must indicate that she/he is acting in a representative capacity.

The ALA is also silent on when the signatures of the parties or their authorised
representatives should be affixed to the document. In Just Names Properties 11 CC v
Fourie 2008 1 SA 343 (SCA) it was held that the function of the signatures is to indicate
agreement on the terms. As such, the signatures must be affixed after the terms of the
contract have been reduced to writing or at least before the contract containing the
terms is released to the other party. This means that one party cannot sign the
document when blank and authorise the other party to complete the contract.

LPL4801/3 7
 1.2.5 Rectification
prima facie valid In spite of what has just been said in 1.2.4 above, a deed of alienation may nevertheless
be rectified if it does not correctly reflect the common intention of the parties.
However, before it can be rectified, it must be a prima facie valid deed of alienation.
A prima facie valid agreement should at least

• contain the essentialia of the type of contract in question,

• disclose the identity of the parties, and
• be signed by the parties or their agents.
application If an essential term has merely been incorrectly reproduced in the document (e.g.
“Erf 283” instead of the correct “Erf 238”), the contract is, of course, prima facie
valid and capable of rectification, provided that all the requirements for rectification
have been complied with. If a material term that is not one of the essentialia is
inadvertently omitted, or is incorrectly reproduced, the contract is prima facie valid
and capable of rectification.

However, a document in which one or more of the essentialia, or the signature of one
or both parties, has been omitted, is prima facie invalid and cannot be rectified. This
is according to the approach adopted by the Appellate Division in Magwaza v Heenan
1979 2 SA 1019 (A), which was followed by many subsequent decisions.

1.2.6 Alienation through an agent (representative)

1.2.6.1 Definition of “agent”

meaning of Section 2(1) of the ALA requires a deed of alienation to be signed by the parties
“agent” thereto “or by their agents acting on their written authority”. But what is meant by
the term “agents”? Although the term may sometimes bear a different and wider
meaning, within the context of the ALA it means a person who has been authorised
by another, the principal, to conclude the contract of alienation on his/her (the
principal’s) behalf. In terms of section 2(1) of the ALA, the agent may conclude the
alienation only if the principal has authorised her/him in writing to do so.

persons who don’t The following persons, although acting on behalf of others, are not agents for
need written purposes of section 2(1) of the ALA and consequently do not require the written
authorisation
authority of the persons or entities whom they represent:

• a father as the natural guardian of his child,

• the guardian of a minor,
• the husband or wife who is married in community of property,
• a partner who acts on behalf of his co-partners,
• the curator of a person who is unfit to manage his/her own affairs,
• the executor of a deceased estate,
• the trustee of an insolvent estate, and
• the liquidator of a company.
authority derived The persons listed above all derive their authority to act on another’s behalf either
from law through our common law or from a statutory provision. An attorney or advocate,
however, has no ex lege authority (authority derived directly from the law) to enter
into a deed of alienation on behalf of his/her client and, consequently, requires
written authority to do so.

8
 STUDY UNIT 1: Formalities required for the conclusion of a binding contract of sale

1.2.6.2 Manner of appointment of agent and ratification of unauthorised agents

form of Although the agent’s authority must be in writing, its form is immaterial. As long as
authorisation the authorisation has been legibly written, typed or printed, the requirements of
section 2(1) of the ALA have been complied with. It may, for example, be contained
in a formal power of attorney or in an informal document, letter, telegram, radio
telegram, phonogram, telex printout, written resolution of the board of directors of
a company (provided that such resolution has been duly minuted), and, apparently
even in an office file.

signature The document in which the authority is granted apparently need not be signed.
Section 2(1) of the ALA does not expressly require a signature, and there seem to
be no grounds for a presumption that the legislature intended a signature to be a
requirement for the validity of the authority.

identity The agent need not be named. It is sufficient if his/her identity can be objectively
determinable determined, for example, as a member of a named firm of attorneys.

aware An agent can “act on written authority” only if she/he is aware that the written
authority exists. The agent need not, however, have the authority in his/her
possession when signing the deed of alienation, in fact, it is not necessary for that
agent to have seen the authority. It is sufficient that the written authority exists and
that the agent knows that it exists.

general or specific The agent may derive the authority to act on behalf of the principal from a general
authorisation authorisation, or she/he may be specially authorised to conclude a particular alienation.
A special authority need contain no more than the basic information required to
identify the transaction that the agent is to conclude on behalf of the principal. An
authorisation to sell land must describe the land in such a way that it can be identified.
The description need not, however, be as precise as that required in respect of the
deed of alienation. The purchase price may be left to the discretion of the agent and
need not be stated in the authority. If the deed of alienation exceeds the authority
of the agent, the principal is not bound.

no ratification In view of the fact that the agent must “act” on the principal’s written authority,
the principal cannot ratify a deed of alienation that was entered into on his/
her behalf by a person who did not have the necessary written authority when
signing the deed, or who exceeded his/her authority when he/she signed.

undisclosed The doctrine of the “undisclosed principal” cannot find application in regard to the
principal alienation of land. This means that if an agent enters into a deed of alienation without
disclosing that she/he is acting as a representative, the undisclosed principal cannot
derive any direct benefit from the contract. The reason is that the identity of every
party must appear from the deed of alienation itself, and that extrinsic evidence aimed
at showing that there was another party to the contract is inadmissible. Consequently,
if an agent does not indicate that he/she is an agent, he/she will be personally bound
by the deed of alienation. The principal will, however, be entitled to a cession of the
rights that the agent has acquired, provided that she/he compensates the agent for
any expenses the latter has incurred in connection with the transaction.

1.2.7 Agents and representatives of companies

organs When a company acts through its organs, the act is that of the company itself,
therefore, the organs of a company are not agents of the company and, consequently,

LPL4801/3 9
 do not require written authority when they enter into a deed of alienation of land
on the company’s behalf. However, a company, like a natural person, can also act
through an agent, and when that happens, the agent will have to have the written
authority required by section 2(1) of the ALA.

unincorpora- It is a general principle of the law of agency that no one can act as a representative
ted company of a non-existent principal. This would mean, of course, that it is impossible to act
as a representative of a company that has not yet been incorporated, because before
incorporation there is no company. In terms of section 21 of the Companies Act
71 of 2008, however, it is possible for a person to conclude a contract as agent for
a company that is still to be incorporated, and section 2(2) of the ALA provides that
section 2(1) shall not derogate from the provisions of any law (which also includes
the Companies Act) relating to the conclusion of a written contract by a person
professing to act as the agent or trustee of a company not yet formed, incorporated
or registered. This means that, if a person who is a party to an alienation of land
professes to act as “agent” or “trustee” for a company that is still to be incorporated,
she/he does not need the written authority required by section 2(1) of the ALA.
This is understandable as the company is not yet in existence, so it is unable to grant
authority.

1.2.8 Sales of land by public auction

oral Section 3(2) of the ALA provides that section 2 of the Act does not apply to the
sale of land by public auction. Therefore, an oral agreement for the sale of land by
public auction may be considered valid.

copy of sale: land However, certain formalities are prescribed in instances where land is sold in
sold in instalments instalments by public auction, that is, instances where the land is sold by public
by public auction
auction, but the purchase price, or any other charge payable by the purchaser, is
payable in more than two instalments over a period of more than one year. One
of these formalities is that the seller must provide the purchaser with a copy of
the contract of sale immediately after the auction. The contract of sale comes into
existence when a bid is knocked down to the buyer. The buyer, however, then has
the right to cancel the contract if the seller fails to furnish the buyer with a copy of
the contract.

1.2.9 The variation and revival of deeds of alienation

variation If the parties to a deed of alienation enter into a subsequent agreement that has the
effect of varying any of the material terms of the deed of alienation, the subsequent
agreement must also be reduced to writing and must be signed. An informal (oral)
variation of the deed of alienation ought to be regarded as without effect and ought
not to affect the validity of the original deed. There are, however, a few obiter dicta
that support the view that the result of such (informal) variation will be that the
whole contract will not meet the formality requirements, namely, of being reduced
to writing, and that the deed of alienation will consequently become invalid.

waiver A unilateral waiver by one party to a deed of alienation of a right that he/she derives
from the deed is not a variation of the deed and, therefore, need not be in writing.
cancellation
For example, where a buyer waives the condition that building plans need to be
furnished to him/her, this will probably not have to be in writing. Similarly, an
agreement in terms of which a deed of alienation is cancelled and one releasing a
party to the deed from some of his duties do not amount to variations of the deed.
Thus, such agreements are not required to be in writing either.

10
 STUDY UNIT 1: Formalities required for the conclusion of a binding contract of sale

revival The possibility also exists that a cancelled deed of alienation may be revived informally
by the parties. This may happen, for example, where the party who cancelled waives
the rights he/she derived from the cancellation when the other party requests him/
her to do so.

1.2.10 The “cooling-off” right of the prospective purchaser, or purchaser,

to revoke the offer or terminate the contract of sale
revocation or Section 2(2A) of the ALA requires that the deed of alienation must contain the right
termination of a purchaser or prospective purchaser to revoke the offer or terminate the deed
of alienation in terms of section 29A of the Act. Section 29A of the ALA confers
on certain purchasers or prospective purchasers of residential land the right to
terminate a deed of alienation or to revoke an offer to purchase land within five
days after signing the alienation or offer by sending a written notice to the seller.
The written notice will be effective only if it is signed by the purchaser, identifies the
offer or deed of alienation that is being revoked or terminated, and is unconditional
(s 29A(3)).

refund Where an offer is revoked or a deed of alienation is terminated, every person who
received any amount from the purchaser or prospective purchaser in respect of
no remuneration
the offer or deed of alienation must refund the full amount of such payment to
no damages the purchaser within 10 days of the date on which the written notice was delivered
to the seller (s 29A(4)). No person will be entitled to any remuneration payable in
respect of an offer or deed of alienation that the purchaser or prospective purchaser
has revoked or terminated, and no such person or agent will be entitled to claim
damages from any person (s 29A(6)).

“cooling-off” right A peremptory naturale has, therefore, been created by the ALA. A purchaser or
prospective purchaser cannot validly waive the rights conferred upon him/her
in terms of section 29A of the ALA, and any such waiver will, therefore, be void
(s 29A (7)(b)).

purpose The purpose of section 29A of the ALA is to protect purchasers against high-
pressure selling techniques, their own inexperience in property transactions, and
their irrational and emotional decision making. The “cooling-off” right is confined
to persons who are in need of protection.

residential land Section 1 of the ALA defines land for the purposes of section 29A of the Act by
confining its meaning to residential land and extending its meaning to all forms of
residence. Agricultural land is specifically excluded and is defined as any land
used, or intended to be used, mainly for commercial farming operations (s1). Section
29A of the ALA is applicable to:

• land, whether registerable or not, that is used, or intended to be used, mainly for
residential purposes,
• any housing interest as defined in section 1 of the Housing Development Schemes
for Retired Persons Act 65 of 1988, and any proposed housing interest,
• any share in a share block company as defined in section 1 of the Share Blocks
Control Act 59 of 1980, and any proposed share that confers on the holder of
such share the right to occupy land owned or leased by the share block company
and which is used, or intended to be used, mainly for residential purposes, and
• any unit as defined in section 1 of the Sectional Titles Act 95 of 1986, and any
proposed unit.

LPL4801/3 11
limits The “cooling-off” right is not available (s 29A(5)) where

• the purchase price of the land, or the price offered for the land, exceeds R250 000,
or such higher amount as the Minister may prescribe,
• the purchaser or prospective purchaser is a trust or a person other than a natural
person,
• the purchaser has purchased the land at a publicly advertised auction,
• the seller and purchaser have previously entered into a deed of alienation of the
same land on substantially the same terms,
• the purchaser or prospective purchaser has reserved the right, in terms of the
deed of alienation or offer, to nominate or appoint another person to take over
the rights and obligations of the purchaser as stipulated in the offer or deed of
alienation in question, and
• the purchaser purchases the land by exercising an option that was open for exercise
for a period of at least five days.
automatic exercise A purchaser or prospective purchaser who signs a deed of alienation in respect of
land (the later transaction) within five days after having signed an offer or a deed of
alienation in respect of other land (the earlier transaction) before he/she has exercised
his/her “cooling-off” right in respect of the earlier transaction, will, on signature
of the later transaction, be deemed to have exercised his/her “cooling-off” right to
revoke or terminate the earlier transaction (s29A(8)). Such purchaser or prospective
purchaser must, however, notify the seller in the earlier transaction of the revocation
of that transaction in writing (s 29A(8)). Failure to do so is a criminal offence and
the civil remedies of the seller continue to exist (s 29A(9). This automatic exercise
of the “cooling-off” right does not apply to a purchaser or prospective purchaser
who bona fide intends to purchase both pieces of land (s 29A(10)).

1.2.11 The consequences of non-compliance with formalities

1.2.11.1 Failure to comply with section 2(1) of the ALA

void Section 2(1) of the ALA provides that no alienation of land shall be of any force or
effect unless it is contained in a deed of alienation signed by the parties thereto or
by their agents acting on their written authority. This means that an alienation that
does not comply with the formal requirements is void and that neither party is bound
by it. It may easily happen, however, that one or both parties render partial or full
performance before they become aware that the formal requirements have not been
properly complied with. Section 28 of the ALA regulates the position as follows:

valid (1) If the person to whom the land has been alienated has rendered full per-
retrospectively: full formance and the land has been transferred to her/him, the alienation is
performance
valid from the beginning in every respect, notwithstanding the fact that the
formal requirements were not complied with. In such a case, neither party
can reclaim her/his performance. A void contract is not enforced: it is rather
a contract which, in terms of the ALA, has become completely valid with
retrospective effect.
statutory (2) If the person to whom the land has been alienated has rendered only partial
enrichment performance, or has rendered full performance, but the land has not yet been
claim: partial transferred to him/her, each party is entitled to reclaim from the other that
performance
which he/she has performed. In addition, the alienee (purchaser) is entitled
to interest on any amount that he/she may have paid in terms of the deed of
alienation, calculated from the date of payment to the date of recovery at a

12
 STUDY UNIT 1: Formalities required for the conclusion of a binding contract of sale

rate prescribed by regulation by the Minister. She/he is also entitled to rea-

sonable compensation for necessary and useful expenses that may have been
incurred in connection with the land. The alienator (seller), on the other hand,
is additionally entitled to reasonable compensation for the occupation, use or
enjoyment that the alienee may have had of the land, as well as to compensation
for any damage intentionally or negligently caused to the land by the alienee
or any third person for whose actions the alienee may be liable.

1.2.11.2 Failure to comply with section 2(2A) of the ALA

no express The ALA fails to state expressly the consequences of failing to incorporate the
determination ‘’cooling-off” right in the contract of sale.

confl icting The intention of the legislator has to be determined by taking into consideration the
decisions language of the ALA, its nature and scope and the consequences of visiting invalidity
upon the contract. The courts hold conflicting views. In Sayers v Khan 2002 5 SA
688 (C) the court held that such contracts are void. The normal position would then
be that the any party who has rendered a performance in terms of a void contract
may reclaim his/her performance. In Gowar Investments (Pty) Ltd v Section 3, Dolphin
Coast Medical Centre 2007 3 SA 100 (SCA), however, it was held that the contract was
voidable at the instance of the purchaser.

Unisa’s opinion The latter decision seems to be correct, because the ‘’cooling-off” right is exclusively
to the benefit of the purchaser. Where the purchaser cancels the contract, the
contract comes to an end from that moment, and the parties must give back the
performances they have received.

1.3 FORMALITIES PRESCRIBED FOR THE SALE OF LAND ON

INSTALMENTS
The formal requirements dealt with above apply to all alienations of land. However,
when such alienation takes the form of a sale on instalments (i.e. a sale in terms of
which the buyer must pay a sum of money in more than two instalments over a period
of more than one year), there are further requirements relating to the language of the
contract (s5), contents of the contract (s6), invalid terms (s15), the recording of the
contract against the title deed of the land (s20), and the relief the court may grant if
the contract does not substantially comply with the provisions of sections 5 and 6
of the ALA (s24). These sections are dealt with in study unit 2 below.

ACTIVITY
1. Name the two instances where the law will give effect to an oral contract
for the sale of land.
2. Tomas sells his house to Luanda for R300 000. The written contract of sale
identifies Tomas as the seller and Luanda as the purchaser. Luanda signs
the contract at the end with her full signature, but Tomas only initials the
contract at the end. The parties are correctly identified as the purchaser
and seller respectively. The purchase price is incorrectly reflected in the
written contract as R290 000. The house is simply described as Tomas’s
house. There is only one house registered in Tomas’s name. The written
contract refers to the purchaser’s “cooling-off” right. The written contract
contains no further terms, although the parties have orally agreed on the
date on which Tomas has to give Luanda occupation.

LPL4801/3 13
 (a) Does a valid contract of sale come into being?
(b) Can Tomas apply to have the contract rectified so as to reflect the
correct price the parties agreed upon and the date on which Tomas
has to give Luanda occupation?
3. Susan sells her house to Peter for R250 000. Their contract is not reduced
to writing. Peter undertakes to pay Susan R100 000 immediately and the
balance of the purchase price on the date of registration. Peter pays Susan
the R100 000 and immediately takes occupation of the house. Before the
sale, Susan let her house for R2 000 per month. The roof of the house
leaks terribly and Peter pays a builder R10 000 to fi x the roof. Susan avers
that the oral contract of sale is invalid and institutes a claim against Peter
to evict him from the house. Advise Peter.
4. Reread the scenario at the beginning of the study unit on page 1. Then
advise Xavier accordingly.

1 FEEDBACK
(1) The first instance is land sold by public auction and the second is a sale where
the person to whom the land has been sold has rendered full performance
and the land has been transferred to him.

(2) (a) This question deals with the two formalities required by the ALA. The
first is the requirement of writing. The parties are correctly identified in
the written contract as seller and purchaser. The essentialia are both
in the written contract. Although the price is stated in the contract,
it is incorrect. By identifying the thing sold as Tomas’ house, the
parties have identified the thing sold with an objectively determinable
relationship between the land and the seller. If Tomas owned more
than one house, no such relationship would have existed and we
would have had to resort to the parties’ agreement to determine which
house they meant. Both signatures are acceptable. It does refer to
the required cooling-off right. Both approaches to the question as to
whether a term should be regarded as material would consider the
date of occupation as material. The contract thus does not comply
with the requirement of being in writing.
(b) Rectification is possible if the contract is prima facie valid. The contract
contains the essentialia, correctly identifies the purchaser and seller,
and is signed by both parties. The contract is thus prima facie valid and
can be rectified.
(3) The contract of sale is void, because it is not in writing, nor have the
“parties” performed in full. Susan can, therefore, evict Peter and claim
reasonable compensation from Peter for his occupation of the house. The
rent that Susan got is a good indication of such compensation. Peter may
claim reasonable compensation from Susan for the repair of the roof, because
it is a necessary expense. He may also claim interest on the R100 000 plus
interest from Susan (s 28 of ALA).
(4) Because the contract is not reduced to writing it is void and Xavier can
reclaim his deposit. Apply sections 2 and 28 of the ALA.

14
 THE ALIENATION OF LAND ACT 81 OF 1961

2 STUDY UNIT 2
Alienation of Land Act regarding the sale of
immovable property on credit

Cassandra buys a town house from ChopProp. The purchase price of R500 000 is
payable as follows: She pays R100 000 in cash upon signing the contract. The balance
of the purchase price is payable over five years in monthly instalments of R10 000.
Three years after signing the contract, she has paid 80% of the purchase price.
Cassandra has been advised that ChopProp is experiencing financial difficulties and
she is anxious about losing the amount paid without receiving transfer of the town
house in time. Does Cassandra have any remedies?

OVERVIEW
In this study unit we look at the various applicable statutory terms where immovable
property is sold on credit. In particular, we investigate the protection that Chapter
II of the ALA offers to purchasers who have bought land on credit. These statutory
measures are largely consumer protection measures aimed at preventing the abuse of
consumers. You are also introduced to the statutory measures created by the ALA
in protecting buyers from unscrupulous practices by sellers when selling immovable
property on credit.

CONTENTS
2.1 INTRODUCTION
2.2 BASIC CONCEPTS
2.3 LAND SOLD MUST BE REGISTERABLE WITHIN FIVE YEARS
2.4 RECORDING OF THE CONTRACT
2.5 THE RIGHTS OF THE PURCHASER OR REMOTE PURCHASER
AND INTERMEDIARY TO TAKE TRANSFER
2.6 THE PURCHASER’S RIGHT TO BE INFORMED OF AMOUNTS
PAYABLE
2.7 THE RIGHT OF THE PURCHASER OR REMOTE PURCHASER TO
FULFIL OBLIGATIONS OF PREVIOUS OWNERS OR SELLERS
2.8 GENERAL
2.8.1 Restrictions on the receipt of counter-performance
2.8.2 The right of a purchaser to claim transfer on partial payment
2.8.3 Sundry provisions

LEARNING OUTCOMES

Having studied the material for this study unit you should be able to:

• briefly explain under which circumstances Chapter II of the ALA will apply to
a contract
• explain the basic concepts such as “land”, “registerable”, “remote purchaser”,
“contract” and “intermediary”, which are used in the ALA
• explain the rights and duties of the purchaser under Chapter II of the ALA and
apply the principles to practical examples

LPL4801/3 15
 • explain the rights and duties of the seller under the ALA and apply these principles
to practical examples

2.1 INTRODUCTION
history of Chapter Malpractices often occur in connection with the sale of immovable property on credit
II and, more particularly, in connection with the sale of residential erven on credit. For
example: a purchaser may pay off his property diligently, only to discover when he/
she wants to take transfer at the end of the term that the seller is sequestrated and
the property now falls into the insolvent estate. Chapter II of the ALA addresses
these malpractices.

In this study unit we only address Chapter II of the ALA, which is titled “Sale of
Land on Instalments”.

property Similar provisions for the protection of consumers are also to be found in the Property
time-sharing Time-Sharing Control Act 75 of 1983. In property time-sharing, the use of a holiday
flat or cottage is sold to consumers in segments of a week, and this has become a
popular form of holiday making. A combination of unscrupulous developers, the
vulnerability of consumers and a gap in the law has since necessitated legislative
intervention to make provision for this type of transaction. However, this form of
sale will not be dealt with in this module.

2.2 BASIC CONCEPTS

You will not be able to understand Chapter II of the ALA unless you are thoroughly
conversant with the following basic concepts:

definition of land The word “land” is dealt with in study unit 1 above. For the purpose of Chapter II
of the ALA, however, this definition is qualified to the extent that it only applies to
land (as defined) that is used or intended to be used mainly for residential purposes.

definition of a “Contract” is defined as “a deed of alienation under which land is sold against
contract payment by the purchaser to, or to any person on behalf of, the seller of an amount
of money in more than two instalments over a period exceeding one year”.

limited scope Chapter II of the ALA, therefore, applies only to sales of land mainly for residential
purposes and not to other forms of alienation. Furthermore, it applies only to sales
in terms of which the purchase price (plus other amounts payable in terms of the
contract) is payable in more than two instalments over a period of more than
one year.

definition of a A remote purchaser of land is any person who purchases land in terms of a contract
remote purchaser
from a person who is not (yet) the owner of the land. A person ceases to be a
“remote” purchaser as soon as the land that he/she has bought, is registered in the
name of the person who sold it to him/her.

definition of an An intermediary is any person who sells land to a remote purchaser, as well as any
intermediary person who has alienated land that, after such alienation, is sold by another person
to a remote purchaser at a time when the land has not yet been transferred to the
first-mentioned person.

16
 STUDY UNIT 2: Alienation of Land Act regarding the sale of immovable property on credit

EXAMPLE
Peter is the owner of a property. He sells the land to Steve. Before the property has
been registered in Steve’s name, Steve sells the property to Helen. Before the property
is registered in her name, Helen sells the property to Yvonne. In this example, Steve
is an intermediary, whilst Helen and Yvonne are remote purchasers.

definition of “Registrable” means that the land is capable of being registered as the subject of
registrable a separate title deed in a deeds registry office, in that the requirements of any law
relating to such registration have been complied with.

EXAMPLE
When an owner subdivides his/her property, the subdivided portion will only become
“registrable” once the subdivision diagram has been approved by the surveyor general,
and the subdivision has been approved by the town council, and all the conditions
of subdivision have been complied with.

2.3 LAND SOLD MUST BE REGISTRABLE WITHIN FIVE YEARS

latest date of Section 6(1)(q) of the ALA requires that any contract where land is sold, which land at
registration the time of sale is not the subject of a separate title deed, must contain a clause stating
the latest date at which the land shall be registrable in the name of the purchaser.
This date may not be later than five years from the date of conclusion of the contract.
rights of the seller If the seller is unable, for whatever reason, to give transfer on the stated contracted
in the case of date against simultaneous payment of all the amounts payable to her/him by the
non-registration
purchaser in terms of the contract, the purchaser has a choice of either cancelling
or upholding the contract. If she/he cancels the contract, the provisions of section
28(1) of the ALA take effect and each party is then entitled to the return of that
which she/he has performed, as well as to the payment of those additional amounts
determined by that section. If the purchaser elects to uphold the contract, no interest
is payable by her/him from the date stated in the contract as the registrable date
until the date on which transfer is tendered. If the seller is in breach of contract by
virtue of her failure to tender transfer on or before the stated date, the purchaser,
furthermore, retains her/his normal contractual claim for damages.
The abovementioned provisions in terms of section 6 of the ALA prevent (in
particular) township developers in particular from postponing the transfer of erven
to their purchasers and claiming interest on the “outstanding” purchase price until
transfer takes place. It is no longer possible to hold buyers liable for an unlimited
time, in terms of contracts where the development gets delayed for any reason.

2.4 RECORDING OF THE CONTRACT

recording against In terms of section 20 of the ALA, a seller of land, whether he/she is the owner of
title deed the land or not, must cause the contract in terms of which the land was sold to be
recorded against the title deed of the land. The reason behind this is so that any
interested third party will be informed that a sale agreement is or sale agreements
are in place relating to the specific property. If the seller fails to cause the contract
to be so recorded, the purchaser may cancel the contract within a prescribed time,
in which case the provisions of section 28(1) of the ALA regarding restitution
and compensation take effect, without detracting from any claim for contractual

LPL4801/3 17
 damages that the purchaser may have. The purchaser may, however, elect to abide
by the contract, in which case he/she may personally apply to the Registrar of Deeds
concerned to have it recorded.

preferential claim The recording of a contract also confers a claim on the purchaser if the land is
on insolvency sold in execution or sold on the owner’s insolvency. Such claim ranks in preference
immediately after any claim of a mortgagee whose mortgage bond over the land was
registered prior to or on the date of the recording of the contract.

If a mortgage bond is registered after the contract has been recorded, the mortgagee is
deemed to have consented irrevocably and unconditionally in favour of the purchaser
whose contract was recorded or any person to whom the land is subsequently
alienated, to the discharge of the mortgage bond or the release of the land from the
mortgage bond.

2.5 THE RIGHTS OF THE PURCHASER OR REMOTE PURCHASER

AND INTERMEDIARY TO TAKE TRANSFER
rights of remote A remote purchaser herself/himself is entitled to claim transfer of the land if
purchaser
• her/his obligations in terms of the contract under which she/he purchased the
land and the obligations of every intermediary between her/him and the
owner of the land have been fulfilled or fulfilment thereof is tendered, and
• the land is registrable.
right to transfer in The remote purchaser is entitled to such transfer even if any intermediary between
case of insolvency him/her and the owner is insolvent at the time the land is to be transferred. If the
owner of land that has been alienated under a contract becomes insolvent, or if a
judgment creditor of the owner attaches the land, the land must be transferred to any
purchaser who purchased it under a contract, or who is an intermediary in respect of
that contract, provided satisfactory arrangements have been made for the payment
of all transfer costs.

2.6 THE PURCHASER’S RIGHT TO BE INFORMED OF AMOUNTS

PAYABLE
mortgage If the land that has been sold under a contract is encumbered by one or more than
certificate one mortgage bond, the seller must, within 30 days after the conclusion of the
contract, supply the purchaser with a certificate by each mortgagee in which the
amount required by the mortgagee to discharge the bond or to release the land
from the bond, as well as the rate or rates at which interest will be levied as from
the date of the certificate, is indicated. A mortgagee is obliged to furnish such a
certificate to the seller within the prescribed period after being requested to do
so. The certificates concerned must be drawn up and dated no more than four
months before the conclusion of the contract and must either be handed over to
the purchaser by the seller or be sent to the purchaser by registered mail. Any such
certificate binds the mortgagee by whom it was drawn up or her/his successor in
title for a period of four months. Should the seller fail to supply the purchaser with
the required certificate(s) within the period of 30 days, or if the aggregate amounts
reflected in the certificates exceed the purchase price, the purchaser is entitled to
cancel the contract within 14 days, in which case the parties are once again entitled
to the restitution and compensation provided for in section 28(1) of the ALA. This
provision once again protects the purchaser from liability under a contract

18
 STUDY UNIT 2: Alienation of Land Act regarding the sale of immovable property on credit

where the purchase price does not cover the current mortgage on the property,
which will probably cause a delay in the transfer process. The purchaser is,
therefore, provided “an escape route” under these circumstances.

buyer should When land that is encumbered by a mortgage bond is sold in terms of a contract,
be informed in the purchaser must notify the mortgagee of the conclusion of the contract, her/his
the case of legal
proceedings
address and any other particulars in respect of the contract as the mortgagee may
reasonably require. When a mortgagee who has been thus notified institutes legal
proceedings against the mortgagor, he/she must give the purchaser 21 days prior
written notice of his/her intention to institute the proceedings. Any purchaser of
land that is encumbered by a mortgage bond is entitled to request the mortgagee in
writing at any time (but no more than three times a year) to furnish him/her with a
certificate reflecting the amount that is required for the discharge of the bond (or the
release of the land from the bond) and the rate or rates at which interest is payable.

intermediary’s If land is sold by an intermediary, the intermediary must, within 30 days of conclusion
certificate of the contract, hand (or send by registered mail) to the purchaser a certificate or
certificates in which the alienator of the land to the intermediary, and every other
alienator who alienated the land to another intermediary prior to the conclusion of
the final contract, has indicated the amount that was, at the date of the certificate,
still owing to her (i.e. to the person who issued the certificate). If the seller fails to
furnish the purchaser with the required certificate(s) within 30 days, or if the amount
reflected in the certificate exceeds the purchase price, the purchaser may cancel
the contract within 14 days, upon which the parties are entitled to the restitution
and compensation provided for in section 28(1) of the ALA.

right to A remote purchaser may, in addition, by written notice, require the owner or an
information of intermediary to furnish her/him with particulars of the outstanding balance under
remote purchaser
the deed of alienation in terms of which the owner or intermediary alienated the
land, and of any amount that in terms of the deed of alienation is due and unpaid.

annual statements While a contract is in force, the seller must furnish the purchaser with a statement at
least once a year reflecting, inter alia, the amounts owing at that stage to mortgagees
and to prior alienators of the land.

2.7 THE RIGHT OF THE PURCHASER OR REMOTE PURCHASER

TO FULFIL OBLIGATIONS OF PREVIOUS OWNERS OR
SELLERS
right to make In terms of section 11 of the ALA, a remote purchaser is entitled to fulfi l the
payment to any obligations of an owner to its mortgagee or an intermediary to its seller in instances
predecessor
where the owner or intermediary have defaulted in their obligations towards the
mortgagee or the seller. Such fulfilment will be deemed to have been fulfilled by
the remote purchaser to its seller and all the intermediaries.

EXAMPLE
For example, if the owner O owes R40 000 to the mortgagee M, and Intermediary
(1) owes R45 000 to O in terms of their sales contract, and Intermediary (2) owes
R42 000 to Intermediary (1) in terms of their contract, and the remote purchaser
owes R60 000 to Intermediary (2) in terms of their contract, and O should default
in his/her obligations to M by failing to pay an amount of R10 000, then either the
remote purchaser, Intermediary (1) or Intermediary (2) may make payment of the
R10 000 to M. This arrangement will potentially “save” all the contracts involved.

LPL4801/3 19
practical example If the remote purchaser should make the payment to M, then it will be deemed that
the remote purchaser has paid R10 000 to I (2), that I (2) has paid R10 000 to I (1),
that I (1) has paid R10 000 to O and that O has paid R10 000 to M. They will then
each owe their respective creditors the following amounts: the remote purchaser
to I (2), R50 000; I (2) to I (1), R32 000; I (1) to O, R35 000; and O to M, R30 000.

2.8 GENERAL
In paragraphs 2.1 to 2.7 above we dealt with those provisions of the ALA that relate
solely to the sale of land on instalments, that is, the provisions contained in Chapter
II of the ALA. However, the ALA also contains important provisions in Chapters I
and III, which are of general application in regard to alienation of land, that is, they
apply to the sale of land on instalments as well as to other forms of alienation. The
provisions of Chapter I of the ALA relating to the formal requirements with which
deeds of alienation must comply are dealt with in study unit 1 above. However,
there remain a few provisions of Chapter III of the ALA to which we must devote
some attention.

2.8.1 Restrictions on the receipt of counter-performance

section 26 of the The most drastic measure for the protection of purchasers and other transferees
ALA of land is to be found in section 26 of the ALA. This section provides that no
person may, by virtue of a deed of alienation relating to an erf or unit, receive any
consideration of whatever nature, until

• such erf or unit is registrable, and

• where the deed of alienation is a contract required to be recorded (see 2.4 above),
such recording has been effected.
This provision does not, however, apply to an amount that an alienee pays in terms
of the deed of alienation into the trust account of an estate agent or attorney, or to
an amount that she/he pays to the alienator after the alienator has furnished her/
him with a guarantee by a bank, building society or insurance company that the
amount paid will be repaid if the erf or unit is not registrable within the contracted
time-frame and, where applicable, a contract is not recorded within a period specified
in the guarantee for its recording.

2.8.2 The right of a purchaser to claim transfer on partial payment

A purchaser who, in terms of a deed of alienation, has undertaken to pay the purchase
price of land in instalments and who has paid to the seller at least 50% of the purchase
price in such instalments, is, if the land is registrable, entitled to demand transfer of
the land from the seller against simultaneous registration of a first mortgage bond
in favour of the seller, to secure the balance of the purchase price plus interest. If, in
such a case, the seller is unable or fails to tender transfer within three months of the
receipt of the purchaser’s demand, the purchaser may cancel the contract, in which
case restitution and compensation must take place in terms of section 28(1) of the
ALA. With reference to Botha v Rich 2014 4 SA 124 (CC), this right to claim transfer
of the land even applies to the purchaser where the purchaser was in default of the
agreement and the seller purported to cancel the agreement, based on the strength
of a forfeiture clause.

20
 STUDY UNIT 2: Alienation of Land Act regarding the sale of immovable property on credit

2.8.3 Sundry provisions

Please also take note of the following provisions:

(a) Section 29 of the ALA, which invalidates a waiver by the purchaser of

any right conferred on him/her by the Act.
(b) Section 30 of the ALA, which appears to indemnify the state conveyancers
and public servants against liability when they have acted in good faith.
(c) Section 32 of the ALA, which renders certain sections of the Act applicable
to contracts concluded before the commencement of the Act, but which
are still in force at the date of commencement.
overlap of statutes Keep in mind that both Chapter II of the ALA and the National Credit Act
34 of 2005 may apply to the same sale of land where the purchase price is
payable in instalments over a period exceeding a year and interest is payable
to a credit provider in respect of the deferred amount and the land is intended
to be used for residential purposes. We will now introduce the National Credit
Act 34 of 2005 and its impact on the law of sale.

ACTIVITY
1. A is developing land in the Tshwane district. A plan has been drawn up
showing the different erven in the development as well as parklands,
schools and business areas. The plan has been approved by all the relevant
authorities. None of the erven has been registered as yet. B is a bank that
has granted a loan of R5 million to A and has registered a bond over the
property for that amount. C is a speculator who has bought five of the erven
(no 91–95) at R80 000 each. C has sold Erf 91 to D at R100 000 and Erf 92
to F at R105 000. In the meantime, F has sold her erf to G for R101 000. The
contract price in each case is payable by the buyer as follows: payment of a
deposit of 20% and the balance of the purchase price in equal instalments
over three years at an interest rate of 10% per annum.
(a) Discuss whether Chapter II of the ALA is applicable to any of the
above sales agreements.
(b) Determine the status of each of the parties in the above agreements
in terms of the definitions contained in the ALA.
(c) C has failed to record her contracts with D and F as required after
more than a year. Advise D and F on any remedies they may have.
2. Reread the scenario at the beginning of the study unit on page 15 and advise
Cassandra accordingly.

2 FEEDBACK
(1) (a) In your answer you had to discuss the application of the ALA with
reference to the definitions of “contract” and “land” above. In applying
those definitions, it is clear that what is being sold is land, and that
the sales agreements are “contracts” within the meaning of the ALA,
rendering the Act applicable.
(b) See the definitions of a remote purchaser and an intermediary. From
these definitions it is clear that A is the owner of the properties; C
is a buyer but also an intermediary as she has sold properties to D
and F while still not owner of the erven. D, F and G are purchasers,
but also remote purchasers as they are buying from someone who
is not the owner.

LPL4801/3 21
 (c) An intermediary is obliged to record her contract with the remote purchaser
against the title deed of the property as this registration confers
certain rights and benefits on the remote purchaser. Failure to do
so entitles the remote purchaser either to abide by the contract and
have the contract recorded, or to cancel the agreement and reclaim
payment in terms of section 28 of the ALA.
(2) Cassandra has paid more than 50% of the purchase price; therefore, she can
demand that the land is transferred to her with a simultaneous registration
of a mortgage bond in favour of ChopProp.

22
 THE NATIONAL CREDIT ACT 34 OF 2005

3 STUDY UNIT 3
Introduction to consumer credit

OVERVIEW
In this study unit you obtain an overview of the statutory regulations regarding
consumer credit legislation, the background to this legislation and the reason for
its implementation.

CONTENTS
3.1 INTRODUCTION: BACKGROUND TO THE NATIONAL CREDIT
ACT
3.2 AIM OF THE NCA
3.3 COMMENCEMENT

LEARNING OUTCOMES

Having studied the material for this study unit you should be able to:

• explain the need for consumer credit legislation

• write a brief history of consumer credit regulation in South Africa
• describe the aims of the NCA
• indicate the commencement date of the NCA

3.1 INTRODUCTION: BACKGROUND TO THE NATIONAL CREDIT

ACT
background of the The control of charging excessive interest on money loans has been part of our
NCA legal tradition since ancient times. The previous national legislation for this purpose
was the Usury Act 73 of 1968. The sole purpose of the latter was the control and
regulation of interest rates for loans and other credit agreements. Over the years, with
more and more amendments, it became more and more intricate and very difficult
to understand and interpret.

Towards the end of the 20th century, microfinance became a vibrant new industry
in the money market, focusing on short term loans to consumers who did not have
access to loans and finance in the main stream banking and financing sector. This
sector was rife with abuse of consumers and questionable lending and collection
practices. Interest rates on these small loans were exorbitant with annual interest
rates of up to 150%. The Usury Act Exemption Notice was promulgated in 1999.
In terms of this exception, the microfinance industry would be exempt from the
provisions of the Usury Act 73 of 1968 and micro lenders became subject to the
conditions laid down by the Micro Finance Regulatory Council.

Hire-purchase agreements also became a popular trend in terms of which sellers or

financing houses would extend credit to consumers to buy new goods such as cars,

LPL4801/3 23
 furniture and other high priced items that consumers could not ordinarily buy for
cash. The security of the seller or lender consisted in the ownership of the goods
bought. This was achieved by either retaining ownership of the goods or entitling
the seller or lender to cancel the agreement when the consumer was in default and
repossess the goods. Malpractices in this industry soon led to the promulgation of
the Credit Agreements Act 75 of 1980.

Both the Usury Act 73 of 1968 and the Credit Agreements Act 75 of 1980 came under
fire during the latter part of the 20th century for a variety of reasons. The acts were
deemed to be too complicated to be understood and to be effectively administered,
and ought ideally to be contained in one piece of legislation. Furthermore, the two
acts were too limited in scope and were out-dated, not making proper provision for
modern conditions and requirements.

The enactment of the National Credit Act 34 of 2005 repealed and replaced the
abovementioned legislation. The promulgation of the National Credit Act 34 of
2005 (hereafter referred to as “the NCA” for purposes of study units 3–17) aims
to address the following problematic issues: fragmented and out-dated legislation;
ineffective consumer protection in particular with regards to the low income groups;
limited access to credit; high cost of credit; rising levels of over-indebtedness; reckless
behaviour by credit providers and consumers and exploitation by banks, micro-
lenders, debt collectors and debt administrators.

Further important amendments to the NCA were introduced on 13 March 2015,

with the promulgation of the National Credit Amendment Act 19 of 2014 (“the 2014
Amendment Act”), tightening the rope of credit providers even further.

3.2 AIM OF THE NCA

purpose of the The NCA aims to prohibit unfair contractual terms and practices, curb the
NCA provision of reckless credit, provide measures to assist over-indebted consumers,
regulate information acquired and reported by the Credit Bureau, create a central
register of debt obligations and, lastly, establish a regulator and tribunal for effective
enforcement. In short, it creates a consumer credit regulatory system to administer
the credit industry.

Concomitant to the NCA’s main objective is the aim to encourage responsible

borrowing, to avoid reckless lending and to provide for a system of debt
restructuring and enforcement.

The NCA is intended to inform consumers in depth on the content and full
consequences of the transaction that they are about to enter into, to help them make
an informed decision. Many of the provisions of the NCA are aimed to ensure proper
disclosure by the credit provider prior to the conclusion of the contract. However,
it should also become apparent to you that there are also many new provisions that
result in the regulation of this industry.

3.3 COMMENCEMENT
commencement The NCA came into partial effect on 1 June 2006, except for a few sections that
date only became operational a year later, on 1 June 2007.

24
 STUDY UNIT 3: Introduction to consumer credit

ACTIVITY
1. Explain the need for consumer credit law reform, which resulted in the
promulgation of the NCA.
2. Briefly describe the objectives of the NCA.

3 FEEDBACK
(1) See 3.1 above. Reread the paragraph and try to rephrase in your own words.
(2) See 3.2 above. Reread the paragraph and try to rephrase in your own words.

LPL4801/3 25
 THE NATIONAL CREDIT ACT 34 OF 2005

4 STUDY UNIT 4
Application of the NCA in terms of section 8
of the NCA
Lesedi is the sole owner of a business called Green Gardening, which provides
residential gardening services. Green Gardening’s annual turnover is about R250 000
and it has capital assets worth R40 000. Lesedi wants to buy a second-hand Ford
Bantam bakkie on credit to use in his business. Motor Finance (a division of SA Bank
Ltd) agrees to sell the bakkie to Lesedi on credit. The agreement makes provision for
the sale of the bakkie voetstoots at a price of R43 200 payable in monthly instalments
over three years, and provision is made for the payment of fees and interest. The
agreement contains a clause that ownership of the bakkie will only pass to Lesedi once
he has satisfied all his financial obligations under the contract. Lesedi holds a business
cheque account with SA Bank Ltd for transactions related to Green Gardening, but
his other accounts (including a personal cheque and mortgage loan account) are
with another bank. As SA Bank Ltd had access to the Green Gardening business
cheque account, it did not present Lesedi with any pre-contractual documentation
to complete or consider for the credit sale of the bakkie.

OVERVIEW
In this study unit we deal with the various persons protected by the NCA as well as
the various transactions covered and excluded from the NCA. This is an extremely
important study unit for obvious reasons, but easily forgotten by students and
sometimes even legal practitioners! Before you can apply the provisions of the
NCA, you must first ascertain whether the NCA applies to the transaction
at hand.

CONTENTS
4.1 CREDIT AGREEMENTS
4.2 CATEGORIES OF CREDIT AGREEMENTS IN TERMS OF SECTION
8 OF THE NCA
4.2.1 A credit facility
4.2.2 A credit transaction
4.2.3 A credit guarantee
4.3 TWO NEW CATEGORIES (SS 10 & 11 OF THE NCA)
4.4 APPLICATION OF THE NCA TO IMMOVABLE PROPERTY
TRANSACTIONS
4.5 SIZE OF AGREEMENTS (S 9(3) OF THE NCA)
4.6 EXCLUSIONS FROM THE DEFINITION OF A CREDIT AGREEMENT
(S 8(2) OF THE NCA)
4.7 PERSONS PROTECTED BY THE NCA (S 4 OF THE NCA)
4.8 LIMITED APPLICATION OF THE NCA (S 6 OF THE NCA)
4.9 CONTRACTUAL AGREEMENT THAT THE NCA APPLIES

LEARNING OUTCOMES

Having studied the material for this study unit you should be able to:
• discuss which agreements constitute credit agreements and identify these
agreements

26
 STUDY UNIT 4: Application of the NCA in terms of section 8 of the NCA

• identify the distinguishing characteristics of the different credit agreements

• distinguish between the different types of credit agreements
• distinguish between a small, intermediate and large agreement
• explain which transactions are specifically or indirectly excluded from the NCA
• recognise that certain sections of the NCA have limited application
• identify those persons protected by the NCA
• recognise that certain sections of the NCA do not apply to certain credit agreements

4.1 CREDIT AGREEMENTS

elements of a Subject to certain exemptions, the NCA applies to all credit agreements. An
credit agreement agreement will be a credit agreement for the purposes of the NCA, if two elements
are present, namely:

• some deferral of repayment or prepayment, and

• there is a fee, charge, or interest imposed with respect to a deferred payment,
or a discount given when prepayments are made.
The fact that both requirements should be met is evident from the following case law:

case law on two In Voltex (Pty) Ltd v Chenleza CC 2010 5 SA 267 (KZP) the High Court held that an
elements of credit agreement of sale that provides for the purchase price to be paid after delivery of
agreements in
terms of the NCA the goods, but with no interest, charge or fee payable for the credit extended, does
not constitute a credit agreement as defined in section 8 of the NCA.

If these two elements are present an agreement qualifies to be a “credit agreement”

in terms of the NCA.

arm’s length Section 4 of the NCA provides that the Act applies to every “credit agreement”
between parties who deal “at arm’s length” which is made within, or has an effect
in SA, unless an exception applies. (The exceptions are discussed in para 4.6 below.)

“Credit agreement” is defined in section 8 of the NCA a credit facility, credit

transaction, a credit guarantee or any combination of them. In the next paragraph
we will discuss these types of credit agreements.

4.2 CATEGORIES OF CREDIT AGREEMENTS IN TERMS OF

SECTION 8 OF THE NCA
categories of credit The NCA distinguishes between the following four categories of credit agreements:
agreements

• a credit facility,
• a credit transaction,
• a credit guarantee, and
• any combination of the above three.
Section 8 of the NCA reads as follows:

LPL4801/3 27
 8. Credit agreements
(1) Subject to subsection (2), an agreement constitutes a
credit agreement for the purposes of this Act if it is –
(a) a credit facility, as described in subsection (3);
(b) a credit transaction, as described in subsection (4);
(c) a credit guarantee, as described in subsection (5);
or
(d) any combination of the above.
(2) An agreement, irrespective of its form, is not a credit
agreement if it is –
(a) a policy of insurance or credit extended by an insurer
solely to maintain the payment of premiums on a
policy of insurance;
(b) a lease of immovable property; or
(c) a transaction between a stokvel and a member of
that stokvel in accordance with the rules of that
stokvel.
(3) An agreement, irrespective of its form but not including
an agreement contemplated in subsection (2) or section
4(6)(b), constitutes a credit facility if, in terms of that
agreement –
(a) a credit provider undertakes –
(i) to supply goods or services or to pay an amount
or amounts, as determined by the consumer
from time to time, to the consumer or on behalf
of, or at the direction of, the consumer; and
(ii) either to –
(aa) defer the consumer’s obligation to pay
any part of the cost of goods or services,
or to repay to the credit provider any
part of an amount contemplated in
subparagraph (i); or
(bb) bill the consumer periodically for any
part of the cost of goods or services, or
any part of an amount, contemplated in
subparagraph (i); and
(b) any charge, fee or interest is payable to the credit
provider in respect of –
(i) any amount deferred as contemplated in
paragraph (a)(ii)(aa); or
(ii) any amount billed as contemplated in
paragraph (a)(ii)(bb) and not paid within the
time provided in the agreement.

28
 STUDY UNIT 4: Application of the NCA in terms of section 8 of the NCA

(4) An agreement, irrespective of its form, but not including

an agreement contemplated in subsection (2), constitutes
a credit transaction if it is –
(a) a pawn transaction or discount transaction;
(b) an incidental credit agreement, subject to section
5(2);
(c) an instalment agreement;
(d) a mortgage agreement or secured loan;
(e) a lease; or
(f) any other agreement, other than a credit facility or
credit guarantee, in terms of which payment of an
amount owed by one person to another is deferred,
and any charge, fee or interest is payable to the credit
provider in respect of –
(i) the agreement; or
(ii) the amount that has been deferred.
(5) An agreement, irrespective of its form, but not including
an agreement contemplated in subsection (2), constitutes
a credit guarantee if, in terms of that agreement, a person
undertakes or promises to satisfy upon demand any
obligation of another consumer in terms of a credit
facility or a credit transaction to which this Act applies.

4.2.1 A credit facility

A credit facility is where
credit facility (a) the credit provider undertakes to supply goods or services or to pay an
amount or amounts to the consumer or on behalf of the consumer, or
at the direction of the consumer, and either to defer the consumer’s
obligation to pay any part of the cost of the goods or services or to repay
any amount advanced or bill the consumer periodically for any part of
the goods or services or advance; and
(b) any charge, fee or interest is payable to the credit provider in respect of
the agreement or amounts deferred or billed.

EXAMPLE
examples of credit
Typical examples of credit facilities are as follows:
facilities
• bank overdrafts
• credit cards
• accounts at clothing and other shops

In terms of section 4(6)(b) of the NCA, agreements between consumers and

municipalities in respect of payment for municipal services do not constitute a
“credit facility”, but any overdue amount constitutes “incidental credit” to which
the provisions of section 5 of the NCA apply.

4.2.2 A credit transaction

credit transactions An agreement, irrespective of its form, constitutes a credit transaction if it is a pawn
agreement, a discount transaction, an instalment agreement, an incidental

LPL4801/3 29
 credit agreement, a mortgage agreement, a secured loan or a lease or any other
agreement, other than a credit facility or credit guarantee, in terms of which payment
of an amount owed by one person to another is deferred, and any charge, fee or
interest is payable to the credit provider in respect of
(a) the agreement, or
(b) the amount that has been deferred.
case law on two In Essa v Asmal 2012 2 SA 576 (KZP), the High Court considered the interpretation
requirements of the word “charge” in section 8(4)(f) of the NCA, based on the facts presented
before it. The inference drawn from this case is that a profit to be generated by
the credit provider (over and above the loan amount payable by the consumer) will
constitute a “charge” under the NCA, provided that the precise calculation of this
profit is agreed to in advance. This ensures that the consumer is aware of the actual
cost of the credit being advanced to him/her or it. In this case, the Supreme Court
of Appeal confirmed the decision of the High Court, relating to a “charge” (Asmal
v Essa 2016 1 SA 95 (SCA)). In terms of section 8(4)(f) of the NCA, this “charge”
payable to the credit provider must be in respect of the agreement, or the amount
that has been deferred.
In ABSA Technolog y Finance Solutions (Pty) Ltd v Michael’s Bid A House CC 2013 3 SA
426 (SCA) the Supreme Court of Appeal held that the lease agreement in question
would not fall under section 8(4)( f ). The court held that the payment of the rental
was not deferred, because the monthly rentals had to be paid in advance, and that
there could not be a deferral of payment.
A few of the abovementioned forms of credit transactions deserve a short discussion.
It is important to note that the different forms of credit transactions can overlap
and the distinctions between them are not “clear cut”.
instalment An instalment agreement is defined as a sale of movable property where all or part
agreements of the purchase price is deferred and is paid by periodic payments; possession
and use of the property is transferred to the consumer and, ownership either
passes immediately, subject to a right of the credit provider to repossess the property
if the consumer fails to satisfy his or her obligations under the agreement, or, on
satisfaction of all the consumer’s financial obligations under the agreement.
This is perhaps the most common phenomenon of credit transactions.

EXAMPLE
example of
instalment
An example would be buying a television set from Makro, whereby you are given
agreement the television immediately, although you will be paying the purchase price in 20
monthly instalments. If there is a clause in the agreement that Makro will retain
ownership until full payment, or that you will become the owner, but that Makro
will retain the right to reclaim the television set in the event of you defaulting with
the payments, the agreement will be an instalment agreement in terms of the NCA.

definition of a A lease in terms of the NCA covers a lease of movable things, provided that
lease agreement interest, fees or other charges are payable to the credit provider (lessor) and
ownership of the goods passes to the consumer at the end of the term of the
agreement.
The definition of a lease agreement and an instalment agreement overlaps to a large
extent, but an instalment agreement has more specific requirements.
In Michael’s Bid A House, the Supreme Court of Appeal confirmed that a common
law lease (where ownership does not pass to the lessee, but the lessee is entitled to

30
 STUDY UNIT 4: Application of the NCA in terms of section 8 of the NCA

the use and enjoyment and must deliver the thing back to the lessor after expiration
of the lease) is not a “lease” as defined in the NCA, where ownership of the goods
passes to the consumer at the end of the term of the agreement.

incidental credit An “incidental credit agreement” is any agreement in terms of which a charge
agreement is levied for payment of an invoice after a specific date, or where two prices are
quoted to the consumer, the lesser applying if payment is made on or before
a certain date, and the higher for payments thereafter.

In Voltex (Pty) Ltd v SWP Projects CC 2012 6 SA 60 (GSJ), the court held that where
the buyer does not pay the purchase price as required in terms of the contract and
the late payment attracts interest, such interest is not interest “in terms” of a credit
agreement, but instead is payable as damages in consequence of the breach of the
agreement. As such, the agreement would not constitute a credit agreement in terms
of the NCA.

4.2.3 A credit guarantee

credit guarantee An agreement constitutes a credit guarantee if, in terms of that agreement, a person
undertakes to satisfy on demand any obligation of another consumer in terms
of a credit facility or a credit transaction to which the NCA applies.

From the judgments in Ribeiro v Slip Knot Investments 777 (Pty) Ltd 2011 1 SA 575
(SCA) and Nedbank Ltd v Wizard Holdings (Pty) Ltd 2010 5 SA 523 (GSJ), it is clear
that a suretyship agreement will only be deemed a credit guarantee as defined in
the NCA, if the original obligation (principal debt) arises from a credit agreement
(credit facility or credit transaction) as defined in the NCA. Failing which, the NCA
does not apply to the suretyship agreement.

Any agreement that is or contains any combination of the above transactions in

paragraphs 4.2.1 to 4.2.3 is a credit agreement.

4.3 TWO NEW CATEGORIES (SS 10 AND 11 OF THE NCA)

new category Two new categories of agreements are provided for in the NCA, namely,
credit agreements “Developmental Credit Agreements” and “Public Interest Credit Agreements”,
which agreements will not form part of this module.

4.4 APPLICATION OF THE ACT TO IMMOVABLE PROPERTY

TRANSACTIONS
the NCA and A lease of immovable property is never a credit agreement for the purposes of the
its application NCA (s 8(2)(b)). However, an instalment sale of immovable property would
to immovable qualify as a credit transaction in terms of section 8(4)( f ) of the NCA, if the
property
purchaser were to pay any charge, fee or interest in respect of the instalments.

Mortgage bond agreements are specifically identified as credit transactions (s 8(4)

(d)). It also always qualifies as a large agreement in terms of section 9(4) of the NCA.

Therefore, the NCA governs all instalment sales of immovable property where juristic
persons are the purchasers, subject to section 6 of the NCA. Section 6 of the NCA
states that certain provisions of the Act do not apply to credit agreements where the
consumer is a juristic person (see discussion below).

LPL4801/3 31
 If the NCA conflicts with any provisions contained in Chapter II of the ALA, the
NCA enjoys preference in terms of Schedule 1 of the NCA.

4.5 SIZE OF AGREEMENTS (S 9(3) OF THE NCA)

size of credit To categorise the market by size and to facilitate effective regulation, the NCA
agreements provides for three classes of credit agreements, namely, small, intermediate and large
agreements. You will also note later, in study unit 11, that the pre-contractual duties
of the credit provider and the rights of the customer differ, depending on the size
of the particular agreement.

A credit agreement can be small, medium or large, depending on the thresholds

determined by regulation and the type of agreement involved:

small, (a) A “small agreement” is any credit facility or credit transaction where
intermediate and the credit limit or principal debt falls at or below R15 000 and all pawn
large agreements transactions, irrespective of the amount involved.
(b) An “intermediate agreement” is a credit facility where the credit limit
is over R15 000, or a credit transaction where the principal debt falls
between R15 000 and R250 000.
(c) A credit agreement is a “large agreement” if it is a credit transaction
where the principal debt amounts to or exceeds R250 000. A credit facility
therefore cannot be a large agreement. All mortgage agreements
are large agreements.

4.6 EXCLUSIONS FROM THE DEFINITION OF A CREDIT

AGREEMENT (S 8(2) OF THE NCA)
excluded Transactions that are specifically excluded from the definition of a credit agreement are
transactions
• a policy of insurance or credit extended by an insurer solely to maintain payment
of premiums on a policy of insurance,
• a lease of immovable property, and
• a transaction between a stokvel and a member of that stokvel in terms of the
rules of the stokvel.
Section 4(5)(a) of the NCA provides that the NCA will not apply to a debt owed to a
cash seller of goods, after the cheque (or similar instrument) presented for full payment
was dishonoured. Section 4(5)(b) provides that the NCA will also not apply to an
agreement between a seller and a consumer where the consumer pays by means of a
charge against a credit facility extended by a third party and the third party refuses
to pay the seller of the goods. Finally, section 4(6)(a) states that if a consumer pays
fully or partially for goods by means of a charge against a credit facility provided by
a third party, the agreement between the seller and the consumer is not regarded as
a credit agreement for purposes of the NCA.

4.7 PERSONS PROTECTED BY THE ACT (S 4 OF THE NCA)

persons protected The purpose of the NCA is to protect consumers. “Consumer” is widely defined in
by the NCA: section 1 of the NCA read together with section 4 of the NCA and comprises the
natural persons
following persons and entities:
and small juristic
entities
• all natural persons, and

32
 STUDY UNIT 4: Application of the NCA in terms of section 8 of the NCA

• small juristic persons (a juristic person whose asset value or annual turnover,
together with the combined asset value or annual turnover of all related juristic
persons, at the time the agreement is made, is below the threshold value determined
by the Minister (defined as the person who is responsible for credit matters, who
is currently the Minister of Trade and Industry) in terms of section 7(1) of the
NCA. The current threshold is set at one million rand. The asset value or
annual turnover of a juristic person at the time a credit agreement is made, is the
value stated as such by the juristic person at the time it applies for or enters into
that agreement (s 4(2)(a) of the NCA). Therefore, consumers who are “large”
juristic persons are excluded from the protection of the NCA.
A “juristic person” in terms of the NCA includes a partnership, association
or other body of persons, corporate or unincorporated, or a trust if there are
three or more individual trustees, or where the trustee itself is a juristic person.
It does not include a stokvel.

excluded The following transactions are excluded from the scope of the NCA:
transactions in
terms of section 4 (a) Agreements between parties dealing closer than at “arm’s length”.
of the NCA
Consequently, loans between family members, shareholders, partners and
friends on an informal basis will not be regulated by the NCA (s 4(1) read
together with s 4(2)(b) of the NCA).
(b) Where the state, or any organ of state, is the consumer.
(c) Agreements where the credit provider is the Reserve Bank of South Africa.
(d) Where an agreement is a large agreement in terms of which the consumer
is a juristic person whose asset value or annual turnover is, at the time the
agreement is made, below the threshold value of one million rand (therefore,
any large agreement between the credit provider and any juristic person
will be exempted from the operation of the NCA).
(e) When the credit provider is situated outside the Republic (this exemption only
applies upon successful application and approval by the Minister).

4.8 LIMITED APPLICATION OF THE NCA (S 6 OF THE NCA)

limited application Several provisions do not apply where the borrower or consumer is a small juristic
of the NCA to person The most important exclusions here are the following:
small juristic
persons
• Chapter 4 (Parts C and D relating to marketing practices, over-indebtedness and
reckless credit), and
• Chapter 5 (Part C relating to prohibited charges, cost of credit, fees or charges,
interest, maximum interest rates and credit insurance.) This exclusion means that
there are no prescribed maximum interest rates that may be charged where the
consumer is a juristic person, resulting in the common law provisions applying
to these contracts on these matters. However, the common law provisions are
not very clear with regard to interest rates.

4.9 CONTRACTUAL AGREEMENT THAT THE NCA APPLIES

can parties In First National Bank, a division of FirstRand Bank Ltd v Clear Creek Trading 12 (Pty)
determine in the Ltd 2014 1 SA 23 (GNP), the court held that there was nothing that would prohibit
contract that the parties from agreeing to the application of the NCA to a credit agreement that would
NCA applies?
ordinarily be excluded from the ambit of the Act. Considerations of contractual
freedom, pacta sunt servanda and public policy would dictate the court should enforce
such an agreement. However, this decision was reversed in the appeal case of

LPL4801/3 33
 First National Bank, a division of FirstRand Bank Ltd v Clear Creek Trading 12 (Pty) Ltd
(1054/2013) [2015] ZASCA 6 (9 March 2015) because of the uncertainty that it would
create in those particular circumstances.

ACTIVITY
1. Compare the definitions of the following credit agreements to which the NCA
applies, pointing out the similarities and differences between the different
agreements:
– credit transaction
– incidental credit agreement
– credit facility
– instalment agreement
– lease
2. When would Chapter II of the ALA apply to a transaction that also qualifies
as a credit transaction in terms of the NCA?
3. Reread the scenario at the beginning of this study unit on page 26 and
advise Lesedi whether the NCA is applicable.

4 FEEDBACK
(1) Credit transaction: see 4.2.2 above.
Incidental credit agreement: see 4.2.2 above. (It is a form of a credit
transaction, therefore, shares the definition and characteristics of a credit
transaction).
Credit facility: see 4.2.1 above. (Although not a credit transaction, it shares
the characteristics of a credit agreement in terms of the NCA, because they
are all types of credit agreements.)
Instalment agreement: see 4.2.2 above. (It is a form of a credit transaction,
hence same definition and characteristics of credit transaction.)
Lease: see 4.2.2 above (it is a form of a credit transaction, hence same
definition and characteristics of credit transaction). Also note the similarities
when compared with an instalment agreement. How do they differ?)
(2) Chapter II of the ALA applies where the purchase price is payable in
three instalments or more, over a period exceeding a year, and the land is
intended for residential purposes. It will overlap with the NCA if it meets the
requirements in terms of section 8(4)(f) in respect of a credit transaction.
Please note that this transaction cannot be an “instalment agreement”,
because the latter only pertains to movable goods.
(3) You should identify this transaction as an instalment agreement, which is a
credit transaction, which is a credit agreement in terms of the NCA. You see
how important it is to know the definitions of each from of agreement covered
by the NCA to ascertain whether the NCA is applicable or not. Furthermore,
Lesedi is a natural person and, therefore, deserves protection under the
NCA. Remember to refer to the correct sections of the NCA in your answer.

34
 THE NATIONAL CREDIT ACT 34 OF 2005

5 STUDY UNIT 5
Consumer credit policy (ss 60–66 of the
NCA)

Julia informs you that she applied for a loan of R10 000 from XYZ Bank on 1
December 2014. She was informed on the following day that her application was
unsuccessful and that the loan had not been approved. The bank fails to explain
why Julia was unsuccessful. Julia wishes to know what her remedies are in terms of
the NCA as she would like to know why her loan was not approved.

OVERVIEW
In this study unit you deal with rights of consumers when applying for credit, for
example, to buy a house by means of a mortgage loan or to open a clothing account.

CONTENTS
5.1 APPLICATION FOR CREDIT (SS 60 & 61 OF THE NCA)
5.2 OBLIGATION TO PROVIDE REASONS FOR REFUSAL OF CREDIT
(S 62 OF THE NCA)
5.2.1 Request of consumer
5.2.2 Submission of consumer credit information to credit bureau (ss 70
& 71A of the NCA)
5.3 INFORMATION IN AN OFFICIAL LANGUAGE (S 63 OF THE NCA)
5.4 PLAIN AND UNDERSTANDABLE LANGUAGE (S 64 OF THE NCA)
5.5 PROTECTION AGAINST DISCRIMINATORY, RETALIATORY OR
PUNITIVE MEASURES (S 66 OF THE NCA)
5.6 OBLIGATION ON CREDIT PROVIDER TO KEEP PERSONAL
INFORMATION CONFIDENTIAL (S 68 OF THE NCA)
5.7 DUTY TO REPORT CERTAIN INFORMATION (S 69 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit you should be able to:

• explain a consumer’s right to apply for credit

• explain the protection provided to the consumer against discrimination in terms
of the NCA
• explain the consumer’s right to reasons for the refusal of credit
• explain the consumer’s right to information in an official language and plain and
understandable language
• explain the consumer’s rights regarding consumer credit records

LPL4801/3 35
 5.1 APPLICATION FOR CREDIT (SS 60 & 61 OF THE NCA)
unfair Unfair discrimination is prohibited when evaluating a person’s creditworthiness, when
discrimination deciding whether to grant or refuse credit, in determining the cost of the agreement
prohibited
and in proposing or agreeing to the terms and conditions of the agreement.

objective credit A credit provider can use its own point system to manage, underwrite or price credit
assessment risk, provided that the primary or predominant basis of the allocation of the points
mechanisms on the points system is not due to differentiation or discrimination on a prohibited
ground. The NCA rather encourages credit providers to develop credit policy and
credit assessment mechanisms that can be applied objectively. The provisions dealing
with reckless credit (as discussed in study unit 9 below) require, the credit provider
to assess each credit application individually. This can only be done in a responsible
and justifiable manner if the credit provider has a credit policy and credit assessment
mechanism in place.

remedies A person alleging that there has been a contravention of the NCA in either the
granting or refusing of credit on the basis of discrimination, may either institute
proceedings in the Equality Court constituted by the Promotion of Equality and
Prevention of Unfair Discrimination Act 4 of 2000, or lodge a complaint with the
National Credit Regulator.

Significantly, the National Consumer Tribunal (an adjudicative body incorporated

under s 26 of the NCA) or court may draw inferences of unfair discrimination.

Section 61(4) of the NCA governs that a refusal to extend credit to a minor, does
not amount to discrimination.

5.2 OBLIGATION TO PROVIDE REASONS FOR REFUSAL OF

CREDIT (S 62 OF THE NCA)

5.2.1 Request of consumer

right to receive At the request of a consumer, a credit provider must give the consumer, in writing,
reasons the main reasons for the following:

(a) refusal to enter into a credit agreement,

(b) granting a lower limit under a credit facility than that the consumer had applied
for, or for reducing the credit limit on an existing facility,
(c) refusal to increase a credit limit under an existing credit facility, or
(d) refusal to renew an expiring credit facility or similar renewable credit facility.
details of credit If a credit provider has based its reasons on an adverse credit report received from
bureau a credit bureau, it must advise the consumer in writing of the details of the credit
bureau from which it has obtained the information.

5.2.2 Submission of consumer credit information to credit bureau (SS 70

and 71A of the NCA)
credit information In terms of section 72(1) of the NCA read together with section 19(4) of the NCA, a
to be submitted to credit provider must give a consumer at least 20 business days’ notice of its intention
credit bureau
to submit adverse credit information concerning the consumer to a credit bureau.
A consumer may question the accuracy of any information that is the subject of a

36
 STUDY UNIT 5: Consumer credit policy (ss 60–66 of the NCA)

proposed report to a credit bureau and require the credit bureaux or the National
Credit Regulator to investigate the accuracy of such information without charge
to the consumer. The consumer may be compensated by any person who reported
incorrect information to a registered credit bureau.

automatic removal Section 71A of the NCA makes provision for the automatic removal of adverse
of adverse credit credit information. This section provides that a credit provider must submit to
information all registered credit bureaux, within seven days after a settlement by a consumer
of any obligation, information regarding the settlement where an obligation under
such credit agreement was the subject of an adverse classification, an adverse
listing or a judgment debt. The credit bureau must then remove any adverse
listing within seven days after receipt of information regarding the listing from the
credit provider.

5.3 INFORMATION IN AN OFFICIAL LANGUAGE (S 63 OF THE NCA)

official language Every consumer has the right to receive documentation in an official language that
that consumer can he/she can read or understand, to the extent that it is reasonable, having regard to
understand factors such as usage and practicality.

A credit provider must indicate to the National Credit Regulator (hereafter referred to
as “the NCR”) that it proposes to make documentation available in at least two official
languages, and that it gives consumers the choice to receive any documentation in
either of these two official languages. The NCR can approve the language proposal
or reject the same, having considered the proposal, with regard to factors such as
usage and practicality.

5.4 PLAIN AND UNDERSTANDABLE LANGUAGE (S 64 OF THE

NCA)
plain and Where credit forms are prescribed by regulation, a credit provider must make use
understandable of the prescribed forms. Where no form is prescribed, the document must be in
language
plain language.

test for plain A document is in plain language if it is reasonable to conclude that any ordinary
language consumer of the class of persons, for whom the document is intended, with average
literacy skills and minimal credit experience, could be expected to understand the
content, significance and import of the document without undue effort, having
regard to the following:

(a) the context, comprehensiveness, and consistency of the document,

(b) the organisation, form, and style of the document,
(c) the vocabulary, usage, and sentence structure of the text, and
(d) the use of any illustrations, examples, headings, or other aids to reading and
understanding.
The NCR may issue guidelines for assessing whether the documents satisfy the plain
language requirements.

s 64 test In Standard Bank of South Africa Ltd v Dlamini 2013 1 SA 219 (KZD), the court had to
interpreted by the consider, amongst other things, the plain language requirements of the NCA. The
courts
court concluded that neither section 63 nor section 64 of the NCA assists an illiterate
person. However, if these sections are purposively interpreted they embody the
right of the consumer to at least be informed of the material terms of the documents

LPL4801/3 37
 he/she signs. Unfortunately the court did not indicate what the material terms are
that have to be explained to a consumer, nor did the court consider the practical
and financial impact of its findings on suppliers (credit providers), for example, that
suppliers will need to be trained to explain the material terms of an agreement to a
consumer (See Otto 2014 THRHR 155) .

5.5 PROTECTION AGAINST DISCRIMINATORY, RETALIATORY OR

PUNITIVE MEASURES (S 66 OF THE NCA)
Consumers are protected against discriminatory, retaliatory or punitive measures,
when seeking to exercise or amend their rights under the NCA or in terms of a
credit agreement.

5.6 OBLIGATION ON CREDIT PROVIDER TO KEEP PERSONAL

INFORMATION CONFIDENTIAL (S 68 OF THE NCA)
confidentiality Information given to a credit provider must be treated as confidential and only used
for the purpose permitted or required by the NCA or other legislation. Any person
who discloses confidential information in contravention of the NCA is guilty of an
offence. Where the NCA requires the credit provider to make information available,
as for instance with the duty to report credit agreements in section 69 of the NCA,
there will be no breach of the duty to keep the information confidential.

prior permission Credit providers must ensure that they do not contravene any of these provisions by
obtaining prior permission from the consumer to use the information he/she has
provided for certain stated purposes. However, the information may only be used
for purposes falling within the scope of such permission.

5.7 DUTY TO REPORT CERTAIN INFORMATION (S 69 OF THE NCA)

duty of credit Upon entering into or amending a credit agreement, all credit providers (whether
provider to they are required to be registered or not) must report the following information
report certain
to either the NCR, (for entry into the National Credit Register) or a credit bureau:
information

• the credit provider’s name, principal address and registration number, if any,
• the name and address and ID or passport number of the consumer,
• if the agreement is a credit facility, the credit limit under that facility, and the
expiry date of the agreement, and
• if the agreement is a credit transaction or a credit guarantee, the following must
be provided:
– the principal debt under the agreement,
– the particulars of any previously existing credit agreement that was
terminated or satisfied in connection with the making of the new
agreement,
– the amount and schedule of each payment due under the agreement, and
– the date on which the consumer’s obligations will be satisfied, if the
agreement is fully complied with.
The credit provider must also report the particulars of the termination or satisfaction
of any credit agreement reported, in the prescribed manner and form to either the
NCR or a credit bureau.

38
 STUDY UNIT 5: Consumer credit policy (ss 60–66 of the NCA)

Similarly, if the credit provider transfers its rights, such transfer must be reported
and the person to whom such rights are transferred must satisfy any obligations of
the credit provider.

ACTIVITY
Reread the scenario at the beginning of the study unit on page 35 and advise
Julia accordingly.

5 FEEDBACK
See 5.2 above. In terms of the NCA, Julia is entitled to reasons for refusal of credit.
See 5.1 for the possible remedies, too.

LPL4801/3 39
 THE NATIONAL CREDIT ACT 34 OF 2005

6 STUDY UNIT 6
Regulatory institutions

OVERVIEW
In this section you learn about the appointment of a National Credit Regulator,
who is responsible for promoting the development of an accessible credit market,
addresses the needs of previously disadvantaged consumers, controls the registration
of credit providers and credit bureaux, promotes alternative dispute resolution and,
most importantly, enforces compliance with the NCA.

CONTENTS
6.1 THE NATIONAL CREDIT REGULATOR (“THE NCR”) (S 12 OF
THE NCA)
6.2 PROVINCIAL CREDIT REGULATORS (S 17 OF THE NCA)
6.3 THE NATIONAL CONSUMER TRIBUNAL (SS 26–34 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit you should be able to:

• list the duties of the NCR

• briefly explain the functions of the National Consumer Tribunal.

6.1 THE NATIONAL CREDIT REGULATOR (“NCR”) (S 12 OF THE

NCA)
duties of the NCR The NCA provides for the appointment of a NCR whose functions include promoting
the development of an accessible credit market by addressing in particular the needs
of historically disadvantaged persons, registration of credit providers and credit
bureaux, cancellation or suspension of the registration of credit providers, dealing
with complaints, promoting alternative dispute resolution, referring matters to the
Competition Commission and generally enforcing compliance with the NCA.

6.2 PROVINCIAL CREDIT REGULATORS (S 17 OF THE NCA)

provincial credit The NCA provides for certain functions of the NCR to be performed by similar
regulators institutions in those provinces that have established such bodies, and further provides
for the Minister of Trade and Industry to delegate functions of the Regulator to
provincial MECs in those provinces that have not established or choose not to
establish self-standing provincial entities. As yet there is no provincial legislation to
put these provisions into operation.

40
 STUDY UNIT 6: Regulatory institutions

6.3 THE NATIONAL CONSUMER TRIBUNAL (SS 26–34 OF THE

NCA)
duties of National The National Consumer Tribunal’s (“the Tribunal”) functions include adjudicating
Consumer on a wide variety of applications and granting declaratory orders and orders of costs.
Tribunal
The Tribunal is aimed at providing consumers with a quick and cost-effective method
of lodging complaints against credit providers and questionable credit practices
without having to resort to costly litigation.

ACTIVITY
List the duties of the National Credit Regulator as explained in section 12 of the
NCA.

6 FEEDBACK
See 6.1 above.

LPL4801/3 41
 THE NATIONAL CREDIT ACT 34 OF 2005

7 STUDY UNIT 7
Registration of credit providers

Thabo has entered into an instalment agreement with Easycash. Easycash is not
registered as a credit provider, but has a credit of R800 000 on its books, which
various consumers owe Easycash. Tabo falls in arrears and now alleges that he can
escape liability in terms of this credit agreement.

OVERVIEW
In this study unit you will learn that credit providers are subject to strict control,
and about the drastic sanctions imposed against them if they fail to conform to the
requirements provided in the NCA to control their activities.

CONTENTS
7.1 APPLICATION FOR REGISTRATION (S 40 OF THE NCA)
7.2 EFFECT OF REGISTRATION (S 52 OF THE NCA)
7.3 CANCELLATION OF REGISTRATION (S 57 OF THE NCA)
7.4 REVIEW AND APPEAL
7.5 REGISTRATION OF DEBT COUNSELLORS AND CREDIT BUREAUX

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain which persons must be registered as credit providers

• explain who may not be registered as a credit provider
• explain who must be registered as a credit bureau
• explain who may apply to be registered as a debt counsellor

7.1 APPLICATION FOR REGISTRATION (S 40 OF THE NCA)

who must register Credit providers are required to register with the NCR if the total principal debt
of all outstanding credit agreements concluded by the credit provider to which the
NCA applies, exceeds the threshold in terms of section 42(1) of the NCA.

In terms of section 42(1) of the NCA, the Minister must determine the threshold at
intervals of every five years.

threshold soon to Before the amendments came into operation through the 2014 Amendment Act, the
be set at zero threshold could not be less than R500 000. However, this is no longer a requirement
and in terms of the notice in the Government Gazette of 4 February 2016 (GN158 GG
39663) it is clear that the Minister of Trade and Industry is in the process of setting
the threshold to zero.

42
 STUDY UNIT 7: Registration of credit providers

NCA applicable The current threshold is currently still set at R500 000. There is case law and authority
to once-off that even credit providers who enter into “once off” credit transactions above the
transactions
threshold amount have to register as credit providers (Van Heerden v Nolte 2014 4
SA 584 (GP)).

When this new threshold is proclaimed, it will mean that all credit providers, dealing
at arm’s length, will be obliged to register, irrespective of the amount of the debt.

NCA not In Paulsen v Slip Knot Investments 777 (Pty) Ltd 2015 3 SA 479 (CC) the court correctly
applicable: no found that there can be no obligation imposed on a credit provider to register in
registration
required
terms of the NCA if the transaction he/she has entered into has been excluded from
the operation of the NCA.

effect of Before the 2014 Amendment Act became operational, any agreement concluded by
non-registration a credit provider who was required to be registered, but who was not, was unlawful
and a court was obliged to order that the credit agreement was void, that the
credit provider had to refund the consumer any money paid under the agreement,
and that all purported rights of the credit provider to recover any money paid or
goods delivered to the consumer in terms of the agreement were either cancelled
or forfeited to the State.

constitutional This heavy sanction has, however, not survived the constitutionality test in National
court’s stance on Credit Regulator v Opperman 2013 2 SA 1 (CC), where the court decided that it provides
harsh sanction
an unacceptable limitation of the right not to be deprived of property arbitrarily.

effect of the 2014 In terms of section 89 of the NCA, the court is conferred an equitable discretion
Amendment Act in terms of which the court may declare the agreement void, and make any just and
equitable order.

factors taken into In considering an application for registration, the NCR may take into consideration
account by the Black Economic Empowerment requirements and any commitments of the applicant
NCR
to combating over-indebtedness, including subscription to any relevant industry code
of conduct approved by a regulator or regulatory authority. Conditions of registration
may also be imposed.

7.2 EFFECT OF REGISTRATION (S 52 OF THE NCA)

certificate of The applicant will be issued with a certificate of registration setting out, among other
registration
things, the activities it may engage in. On registration the applicant must grant the
specific duties NCR access to his, her or its place of business and further comply with legislation
after registration including the Financial Intelligence Centre Act 28 of 2001, post the certificate of
registration at its premises, state its registered status and registration number in a
legible type font on all its credit agreements and communications with consumers
and, lastly, keep any records that may be prescribed.

7.3 CANCELLATION OF REGISTRATION (S 57 OF THE NCA)

Tribunal may The Tribunal may cancel the registration at the request of the NCR if the credit
cancel registration provider repeatedly

• fails to comply with any condition of its registration,

LPL4801/3 43
 • fails to meet a BEE commitment or an over-indebtedness reduction commitment,
or
• contravenes the NCA.
effect of The obligations of both the consumer and the credit provider survive cancellation or
cancellation suspension of registration. Voluntary cancellation of registration is also provided for.

7.4 REVIEW AND APPEAL

remedies at If a credit provider is disaffected or dissatisfied by the decision of the NCR relating
disposal of to registration, conditions imposed on registration, or cancellation of registration, it
dissatisfied credit may apply to the Tribunal for a review of that decision. The Tribunal may confirm
provider
or set aside the decision in whole or in part, including the conditions that the NCR
may have imposed on the registration. A decision by the Tribunal may be appealed
against or taken on review to the High Court in certain circumstances.

7.5 REGISTRATION OF DEBT COUNSELLORS AND CREDIT

BUREAUX
The NCA provides for registration of debt counsellors and credit bureaux. The
regulations provide for the training requirements and standards of experience of
debt counsellors.

ACTIVITY
Reread the scenario at the beginning of this study unit on page 42. Please advise
Thabo.

7 FEEDBACK
Easycash was obliged to register in terms of the NCA. (Why?) Also discuss the
effect of non-registration. Reread 7.1 above.

44
 THE NATIONAL CREDIT ACT 34 OF 2005

8 STUDY UNIT 8
Credit marketing (ss 74–77 of the NCA)

Joe receives a parcel in the mail from one of the most prominent cellular
phone companies in the country. Inside the parcel he finds an I-phone and a letter
stating that, if he does not want the phone, he has to send it back to the sender. If
not, a two-year cell phone contract will come into existence with the sender. Joe
now wants to know whether he has to act in order to escape liability under this
‘’agreement”.

OVERVIEW
In this section you will learn about marketing practices that are regarded as unlawful,
because they place the consumer in an untenable position. This study unit is of
particular importance in the context of the law of sale, as it affects the many
sale agreements concluded in a particular manner or place.

CONTENTS
8.1 NEGATIVE OPTION MARKETING (S 74 OF THE NCA)
8.2 MARKETING AND SALES OF CREDIT AT HOME OR WORK (S 75
OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain what is meant with the phrase “negative option marketing”

• explain why negative option marketing is prohibited
• describe the rules regarding marketing and credit sales at home or work

8.1 NEGATIVE OPTION MARKETING (S 74 OF THE NCA)

negative option Negative option marketing refers to the scenario where the credit provider states that
marketing unless the consumer declines the offer, an agreement will automatically come into
existence. Negative option marketing is prohibited and if a credit agreement is
effect of negative
option marketing concluded as a result of such marketing, the agreement is unlawful and void
once the Tribunal or a court has declared it void. In terms of section 89 of the
NCA, agreements that result from negative option marketing are unlawful. In terms
of section 89 of the NCA, the court is conferred an equitable discretion in terms of
which the court may declare the agreement void, and make any just and equitable
order. Unlawful terms and agreements are discussed in study unit 10 below.

Similarly, offers or any inducements to increase credit limits under a credit facility
on the basis that the limit will be increased automatically unless the consumer
declines such increase of the limit, will be unlawful and void. The same applies to

LPL4801/3 45
 inducements or offers to amend or alter a credit agreement where the credit provider
states that these amendments will take full effect if the consumer does not decline
these amendments.

options for Upon entering into a credit agreement, the credit provider must present to the
consumer upon consumer a written statement of the following options and give the consumer an
entering into the
opportunity to select any of those options:
contract
(a) to decline the option of pre-approved annual credit limit increases, if the
agreement is a credit facility, and
(b) to be excluded from any
(i) telemarketing campaign of the credit provider,
(ii) marketing or customer list that may be sold or distributed by the
credit provider, other than as required by the NCA, or
(iii) any mass distribution of email or SMS messages.
The credit provider must maintain a register in the prescribed manner and form
of all options selected by consumers and must not act in a manner contrary to an
option selected by a consumer.

8.2 MARKETING AND SALES OF CREDIT AT HOME OR WORK

(S 75 OF THE NCA)
marketing and A credit provider must not harass a person to apply for credit.
sales of credit at
the home of the A credit provider may not enter into a credit agreement at a private dwelling, except
consumer

• where such visit is pre-arranged by the consumer for that purpose,

• if the credit provider visited the home for the purpose of offering goods or
services for sale, and incidentally offered to provide or arrange credit to finance
the purchase of those goods or services, or
• if the credit agreement is of a prescribed category that is permitted to be entered
into during a visit to a home.
The restrictions on private dwellings do not apply in respect of developmental credit
agreements as briefly referred to in study unit 4.3 above.

marketing at a A credit provider must not visit a person’s place of employment for the purpose of
consumer’s place inducing the person to apply for or obtain credit, or enter into a credit agreement
of work
at such a place, except

• to enter into a credit agreement with the employer, or

• if the visit results from either a formal arrangement between the credit provider,
on one hand, and the employer and any representative trade union or employee,
on the other; or a non-prompted invitation by the person being visited.
The effect of when the credit provider does not adhere to the above rules is not
specifically provided for in the NCA. It is a matter that could be referred to the
Tribunal for a suitable order.

ACTIVITY
1. Discuss when a credit provider may enter into a credit agreement at a
private dwelling.
2. Reread the scenario at the beginning of this study unit on page 45 and
advise Joe accordingly.

46
 STUDY UNIT 8: Credit marketing (ss 74–77 of the NCA)

8 FEEDBACK
(1) See 8.2 above.
(2) See 8.1 above. This “agreement” is void and Joe does not have to do anything
to decline the “offer”. Joe will not be liable under the so-called agreement.
You will note in study unit 10 below that such an agreement is deemed to
be unlawful in terms of section 89 of the NCA. Also discuss the power of
the courts in this respect, after you have studied study unit 10 below.

LPL4801/3 47
 THE NATIONAL CREDIT ACT 34 OF 2005

9 STUDY UNIT 9
Over-indebtedness and reckless credit

Susan has bought a new television set from Whifi Corporation on credit. It appears
at a later date that Whifi Corporation extended the credit to Susan in spite of an
assessment of Susan’s financial position and debt re-payment history, which had
indicated that Susan could not afford to incur the new debt. Susan is now struggling
to pay her monthly instalments and comes to see you for advice.

OVERVIEW
The main aim of the NCA is to protect the consumer. This is done not only by
recognising that consumers have rights, but also by protecting them against
over-indebtedness and undertaking obligations that could qualify as reckless
credit. The NCA offers relief to consumers who are over-indebted. What is more,
if a credit provider has granted credit to a consumer who could not afford the credit
and the credit provider failed to assess the consumer’s ability to pay properly, the
court may even set aside all the consumer’s obligations in terms of the NCA.

CONTENTS
9.1 OVER-INDEBTEDNESS (SS 78–88 OF THE NCA)
9.2 RECKLESS CREDIT (S 80 & 81 OF THE NCA)
9.2.1 Prevention of reckless credit (s 81 of the NCA)
9.2.2 Assessment mechanisms and procedures (s 82 of the NCA)
9.2.3 Effect of reckless agreement (s 83 of the NCA)
9.2.4 Effect of a suspension order (s 84 of the NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the concept of over-indebtedness

• explain when an agreement will be considered to be reckless
• explain the provisions made in terms of the NCA to prevent the granting of
reckless credit
• explain the effect a suspension order has on a credit agreement
• explain how the NCA prevents over-indebtedness, as well as the provisions
regarding the debt review process

9.1 OVER-INDEBTEDNESS (SS 78–88 OF THE NCA)

definition of A consumer is over-indebted if the preponderance of available information at the
over-indebtedness time that a determination is made, indicates that the particular consumer is or will
be unable to satisfy timeously all the obligations under all the credit agreements to
which the consumer is a party in time.

48
 STUDY UNIT 9: Over-indebtedness and reckless credit

application to A consumer may apply to a debt counsellor to be declared over-indebted.

debt counsellor by
consumer
credit provider The credit provider must comply with any reasonable requests by the debt counsellor
must cooperate to facilitate the evaluation of the consumer’s indebtedness.

debt counsellor’s The debt counsellor must notify all credit providers that are listed in the application
duties
for debt review, as well as every registered credit bureau, of the review application.

rejection of If the debt counsellor concludes that the consumer is not over-indebted, he/she
application must reject the application. If he/she finds that the consumer is not over-indebted,
but is nevertheless experiencing (or is likely to experience) difficulty in satisfying all
his/her obligations under credit agreements in a timely manner, the debt counsellor
may recommend that the consumer and the respective credit providers voluntarily
consider and agree on a plan of debt rearrangement.

debt counsellor Should the debt counsellor conclude that the consumer is indeed over-indebted, he/
finds that she may issue a proposal recommending that the Magistrates’ Court make either or
consumer is
over-indebted
both of the following orders, in terms of section 87 of the NCA:

(a) that one or more of the consumer’s credit agreements be declared to be

reckless credit, if the debt counsellor concluded that those agreements
appear to be reckless;
(b) that one or more of the consumer’s obligations be rearranged by extending
the period of the agreement and reducing the amount of each payment
accordingly, or postponing the dates on which payments are due, or
extending the period of the agreement and postponing the dates
on which payments are due.
no reduction of The above provisions of the NCA do not allow for the debt rearrangement proposal
interest rates is to be based on the reduction of the contracted interest rate (Firstrand Bank Ltd v
allowed
Adams and another 2012 4 SA 14 (WCC); SA Taxi Securitisation (Pty) Ltd v Lennard
2012 2 SA 456 (ECG)).

court’s role If a debt counsellor made a proposal to the Magistrates’ Court as set out above, or a
consumer applies to the court to be declared over-indebted, the court must conduct
a hearing and may thereafter reject the recommendations or application (as the case
may be), or make an order declaring a credit agreement to be reckless, and/or issue an
order rearranging the consumer’s obligations in terms of section 87 (1) of the NCA.

consumer’s A consumer who has filed an application to be declared over-indebted may not incur
conduct pending any further charges under a credit facility or enter into any further credit agreement,
the application
other than a consolidation agreement, until one of the following events has occurred:

• the debt counsellor has rejected the application,

• the court has determined that the consumer is not over-indebted or has rejected
a debt counsellor’s proposal, or
• a court having made an order or the consumer or credit providers having made an
agreement rearranging the consumer’s obligations, all the consumer’s applications
under the credit agreements as rearranged are fulfilled, unless the consumer fulfils
the obligations by way of a consolidation agreement.
Should a consumer apply for or enter into a credit agreement contrary to what has
been said above, the consumer cannot apply to be declared over-indebted in relation
to such an agreement.

LPL4801/3 49
if credit provider If the credit provider has already commenced legal action in terms of section 129 of
has already taken the NCA (as discussed in study unit 16 below), the consumer may not approach the
steps to enforce
agreement
debt counsellor for such a declaration. In such a case, the court itself may declare
the consumer over-indebted and declare the agreement as reckless and make an
appropriate order in rearranging the debt of the consumer. Alternatively, the court
may refer the matter to a debt counsellor for her/his recommendation as above.

consumer may A consumer may, further, approach the court directly for such a declaration if his/
approach the court her application is unsuccessful with the debt counsellor, provided that the credit
directly
provider has not yet instituted legal action, as discussed above.

powers of the court Section 85 of the NCA empowers a court to declare and relieve over-indebtedness.
If a credit agreement is the subject matter of court proceedings and it is alleged
that the consumer is over-indebted, the court may refer the matter directly to a
debt counsellor with a request that the latter evaluate the consumer’s circumstances
and make a recommendation to the court on the appropriate order to be made.
Alternatively, the court may declare that the consumer is over-indebted and make
any order mentioned in section 87 of the NCA to relieve the over-indebtedness.

credit provider’s A credit provider who receives notice of court proceedings in connection with the
rights are frozen suspension of an agreement based on reckless credit or over-indebtedness, may not
pending court
exercise or enforce by litigation any right or security under the credit agreement
procedure
until the consumer is in default under the agreement and

• the debt counsellor has rejected the application for debt review,
• the court has determined that the consumer is not over-indebted,
• the court has made a debt-restructuring order, or the consumer and credit providers
have concluded a debt re-arrangement agreement and the consumer’s obligations
in terms of the agreement have been fulfilled, or
• the consumer defaults in terms of the re-arrangement agreed between the consumer
and the credit providers or ordered by a court or Tribunal (s 83(3) read with s 88(1)
of the NCA. Refer to Otto NCA 108).
In Firstrand Bank Ltd v Kona and Another 2015 5 SA 237 (SCA) the court decided that,
as soon as the consumer is defaulting under the credit agreement as well as the debt
restructuring order, the credit provider may take further steps without cancelling
the debt restructuring order first.

consumer In terms of section 86(10) of the NCA, where a consumer under debt-review defaults
in default of under the agreement under review, the credit provider may give notice to terminate
agreement under
review
the review to the consumer, the debt counsellor and the NCR at any time, but at least
60 business days after the date on which the consumer applied for the debt review.

A credit provider must act in good faith when terminating a debt review (s 86(5)(b)
read with Mercedes Benz Financial Services v Dunga 2011 1 SA 374 (WCC)).

The credit provider can then proceed to enforce the credit agreement. However, in
terms of section 86(11) of the NCA, the court hearing the debt review application
has a discretion to order resumption of the debt review if the agreement is eventually
enforced by the credit provider, but only if it is sensible and practical to do so (Otto
NCA 110).

termination after After the decision of Collet v Firstrand Bank Ltd 2011 4 SA 508 (SCA) where the court
referral to the court held that a credit provider may even give notice to terminate a debt review where
or Tribunal the application for debt review has already been referred to the court or Tribunal,

50
 STUDY UNIT 9: Over-indebtedness and reckless credit

the 2014 Amendment Act introduced an important amendment in terms of section

86(10)(b), which expressly states that no credit provider may terminate an
application for debt review in terms of the NCA where such an application
has already been filed in a court or with the Tribunal.

If a credit provider grants credit to a consumer who has applied for a debt re-
arrangement and the re-arrangement is still in force, this credit may be declared
reckless credit in terms of section 88(4).

sequestration of In Kona the court decided that a debt restructuring agreement does not protect the
consumer’s estate consumer against a sequestration order against him/her at the request of the credit
provider. In this case, the consumers were in default of their debt restructuring order
and the credit provider filed an application for the sequestration of the consumers’
joint estate. The court a quo stated that the debt restructuring order that was still in
place barred the court from granting a final sequestration order. The SCA decided,
however, that a sound interpretation of section 88(3) of the NCA boils down to the
fact that a sequestration application does NOT constitute an enforcement by litigation
of any right or security under the credit agreement itself, and that the credit provider
could obtain a sequestration order despite the debt rearrangement agreement.

credit provider In light of the risk of a credit provider to be faced with an over-indebted consumer or,
must do proper even worse, with an allegation that he/she provided reckless credit to the consumer,
assessment
the credit provider must do a proper credit assessment on the application for credit by
a consumer. There are many different steps that can be taken, but at the minimum
the credit provider should adhere to the Affordability Assessment Regulations as set
by the Minister in the National Credit Regulations, which became operational on 13
March 2015. The aim of these regulations is to tighten the ropes when it comes to
the credit provider’s assessment of whether the consumer can afford credit.

three months’ The credit provider is now obliged to ask for three months’ pay slips and three
bank statements months’ bank statements to reflect the payment of the salary. It is no longer possible
and salary slips
to rely solely on the consumer’s word regarding her/his income.

discretionary The credit provider should calculate the consumer’s discretionary income, which is
income calculated by subtracting from the applicant’s gross income, statutory deductions
(such as UIF and income tax), maintenance, necessary expenses (see discussion below)
and other financial commitments that the consumer might have in terms of other
credit agreements. The credit provider should investigate the latter by consulting the
information from the credit bureau. The credit provider will base his/her decision
on whether or not to grant credit on the discretionary income.

necessary The amount of the necessary expenses is ascertained by a questionnaire completed

expenses by the consumer, but a minimum amount is set in terms of the Minimum Expense
Norms calculator, calculating the consumer’s minimum necessary expenses on a
sliding scale according to the consumer’s gross income. This is to prevent situations
where the wrong information is provided to the credit provider by the consumer’s
agents, and to prevent the credit provider from relying solely on its correctness,
offering further protection to the consumer.

If the consumer’s necessary expenses are less than the monthly expenses in terms
of the Minimum Expense Norms table, the credit provider may, in exceptional
circumstances, work with the smaller amount of expenses. In this case, the
consumer has to complete the Declaration of Necessary Expense Questionnaire.
This questionnaire comprises the following information:

LPL4801/3 51
 • The monthly accommodation expenses, transport fees, food expenditure, medical
costs, water and electricity, educational fees and any amounts payable in terms
of a maintenance order.
The credit provider is entitled to rely on the truth of the above information provided by
the consumer and need not verify its correctness, provided that the credit provider has
obtained the necessary information as discussed above and has acted strictly according
to the Affordability Assessment Regulations. This will protect the credit provider
against claims of reckless credit, but not against over-indebtedness. Therefore, if a
credit provider has granted a consumer credit based on fraudulent information, the
credit provider will not be found to have given reckless credit, but the consumer
can still apply to be declared over-indebted.

9.2 RECKLESS CREDIT (SS 80 & 81 OF THE NCA)

definition of A credit agreement is reckless if, at the time that the agreement was made
reckless credit

• the credit provider failed to conduct an assessment as indicated above, irrespective

of what the outcome of such an assessment might have been, or
• the credit provider, having conducted an assessment as required, entered into the
credit agreement with the consumer despite the fact that the preponderance of
information available to him/her indicated that the consumer did not generally
understand or appreciate the consumer’s risks, costs or obligations under the
proposed credit agreement at the time the agreement was entered into
or that entering into that credit agreement, would make the consumer
over-indebted.

9.2.1 Prevention of reckless credit (s 81 of the NCA)

steps to be taken The credit provider must not enter into a reckless credit agreement. In order to
by credit provider avoid entering into one, the credit provider must take reasonable steps to assess the
to avoid reckless
credit
following:
• whether the proposed consumer understands and appreciates the risks and costs
of the proposed credit, and her/his rights and obligations under the agreement,
• the consumer’s debt repayment history under credit agreements should be
ascertained either from credit bureaux, the National Credit Register or from a
credit questionnaire,
• his/her financial means, prospects and obligations, and
• whether there is a reasonable basis to conclude that any commercial purpose, if
there is such a purpose, for which credit is applied, will be successful.

In Absa Bank v De Beer 2016 3 SA 432 (GP) the court decided that it was irrational
to have taken the surety’s income into account in assessing the consumers existing
means; leading to a declaration of reckless credit. The court further found that the
farming operations by the consumers could not have thought to be successful by
the credit provider in the particular circumstances. One of the aggreviating factors
was that the consumers were already quite old when applying for the credit.

The agreement will be preserved or not deemed to be reckless if the court is

satisfied that the consumer failed to answer any questions fully and truthfully,
and such failure materially affected the ability of the credit provider to make
a proper assessment.

52
 STUDY UNIT 9: Over-indebtedness and reckless credit

9.2.2 Assessment mechanisms and procedures (s 82 of the NCA)

assessment The credit provider may determine his/her own evaluative mechanisms or models
mechanisms and procedures to meet these assessment obligations, provided that it meets the
standards set in the National Credit Regulations and it further complies with the
Affordability Assessment Regulations as determined by the Minister. The NCR may
pre-approve the mechanisms or models or publish guidelines proposing evaluative
mechanisms or models. From now on, the credit provider will have to comply with
the Affordability Assessment Regulations proclaimed in 2015 by the Minister, as
discussed above.

time frame taken When a determination is to be made whether a credit agreement is reckless or not,
into account when the person making that determination must apply the evaluation criteria as
determining
whether credit is
they existed at the time the agreement was made, and not at the time that
reckless the determination is made.

9.2.3 Effect of reckless agreement (s 83 of the NCA)

effects of reckless Before the 2014 Amendment Act became operational, reckless credit on its own was
credit agreements a defence that was available to the consumer. A consumer could not refer a matter
of reckless credit to the NCR independently, but could use same as a defence when
setting aside the
agreement or
the credit provider attempted to enforce a credit agreement against her/him. Section
suspension 136 of the NCA has now been amended to such an extent that a consumer may now
refer an allegation of reckless credit to the NCR.

A court or Tribunal may declare that a credit agreement is reckless if it meets the
requirements described above. If a court or Tribunal makes such a declaration,
it may grant an order setting aside all or part of the consumer’s obligations
under the agreement, or suspending the agreement for a period determined
by the court. It is obvious that these measures are very drastic, in that the credit
provider will be unable to reclaim any performance rendered unless a court or
Tribunal determines that the consumer would be unjustly enriched if allowed to
retain performance. In De Beer the court decided that it was just and equitable given
the circumstances to set aside the credit agreement in total; taking into account the
severity of the recklessness on the part of the credit provider.

suspending and Once a court or Tribunal declares that a credit agreement is reckless, it must also
restructuring of decide whether the consumer is over-indebted, and if it finds him or her to be so,
debt
may grant an order suspending the agreement and restructuring the consumer’s
obligations under any other credit agreement, (as discussed above in terms of s 87
of the NCA) once it has considered the consumer’s means and ability to pay.

9.2.4 Effect of a suspension order (s 84 of the NCA)

effect of If a court or Tribunal makes an order suspending the agreement, the consumer’s
suspension order payment obligations are suspended, as well as the credit provider’s right to payment
and to interest, fees or charges under the agreement. Furthermore, the credit provider’s
rights under the agreement or under any law are unenforceable.

A suspended agreement remains in force, but cannot be enforced until the consumer
is able to afford it. Once the suspension ends, the rights and obligations of both the
credit provider and the consumer under the agreement are revived and enforceable,

LPL4801/3 53
 except to the extent that a court provides otherwise. The credit provider cannot,
however, recover or charge interest and fees that could not be charged during the
suspension.

In addition to the suspension, the NCR may ask the Tribunal to impose an
administrative fine or to make an order altering the credit provider’s business practice.

ACTIVITY
Reread the scenario at the beginning of this study unit on page 48 and advise
Susan accordingly.

9 FEEDBACK
Please see 9.1 & 9.2, above. In broad terms; Susan can apply to a debt counsellor
to be declared over-indebted. If the debt counsellor is of the opinion that Susan
is indeed over-indebted, she can approach the court recommending that the
agreement with Whifi Corporation is declared as reckless credit, which has the
effect that the agreement can be set aside by a court or that all or a part of the
obligation she has incurred with the credit provider is suspended. The court can
also declare that Susan’s arrangements with her various credit providers should
be rearranged in the various ways as provided for in the NCA, which you will also
have to discuss here. Since the 2014 Amendment Act, Susan can now also refer
the allegation of reckless credit to the NCR. If the NCR finds that it was indeed a
case of reckless credit, drastic sanctions will apply. Please discuss these sanctions
in detail. You also need to consider; in depth, what the effect of both such potential
orders (reckless credit and over-indebtedness) will have on the credit agreement
and what effect it will have to both the credit providers and consumer’s rights and
liabilities in terms of the credit agreement.

54
 THE NATIONAL CREDIT ACT 34 OF 2005

10 STUDY UNIT 10
Unlawful agreements and provisions

Reread the scenario at the beginning of study unit 4 on page 26 . Lesedi now wants
to know whether the voetstoots clause is allowed in terms of the NCA.

OVERVIEW
The NCA provides that certain credit agreements are unlawful in their entirety and
that certain credit agreements will qualify as lawful but have unlawful provisions
in them. This study unit is of particular importance for purposes of this module, as
it modifies the common law regarding permitted clauses and conditions in certain
sale agreements.

CONTENTS
10.1 UNLAWFUL AGREEMENTS (S 89 OF THE NCA)
10.2 EFFECT OF A CONTRACT BEING DECLARED UNLAWFUL (S 89
OF THE NCA)
10.3 UNLAWFUL PROVISIONS AND THE EFFECT OF THEIR INCLUSION
(S 90 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• note that section 89 of the NCA dealing with unlawful agreements does not
apply to pawn agreements
• set out which credit agreements qualify as being unlawful
• explain why these agreements are unlawful
• set out the consequences of an unlawful credit agreement
• set out which provisions in a credit agreement are unlawful
• explain the consequences of an unlawful provision in a credit agreement

10.1 UNLAWFUL AGREEMENTS (SS 89 OF THE NCA)

unlawful terms The NCA distinguishes between credit agreements that are unlawful in their entirety
and unlawful
(s 89) and credit agreements that are lawful, but contain unlawful provisions (s 90).
agreements
s 89 not applicable Section 89 of the NCA does not apply to pawn transactions.
to pawn
transactions
In terms of the NCA, agreements (other than pre-paid transactions) are
list of unlawful
agreements
unlawful, where, among other things,

• the consumer is a minor, mentally unfit, or subject to a debt administration order,

and the administrator has not consented to the agreement,
• the agreement results from negative option marketing,

LPL4801/3 55
 • the credit provider, who was supposed to register, was not registered as a credit
provider in terms of the NCA,
• the credit provider had been ordered to stop offering credit by notice from the
NCR or the provincial regulator, and
• if the agreement consisted of split documentation whereby the unlawful provisions
are set out in a separate agreement.
dishonesty by the If the court finds that the consumer induced the credit provider to believe that he/
consumer she had capacity to contract, or attempted to conceal the fact that the consumer was
under an administration order or similar impediment, the validity of the agreement
will not be affected.

10.2 EFFECT OF CONTRACT BEING DECLARED UNLAWFUL (S 89

OF THE NCA)
effect of unlawful In accordance with the Amendment Act 2014, if the court declares a credit agreement
agreement unlawful, the court must make a just and equitable order, including but not
void ab initio
limited to an order that the credit agreement is void ab initio (s 89(5)). Before this
amendment, the credit provider was obliged to return all money received from the
consumer under the agreement, together with interest, and further forfeited its
performance to the consumer. This amendment followed the decision of the court
in National Credit Regulator v Opperman and others 2013 2 SA 1 (CC) that the previous
harsh penalty was inconsistent with section 25(1) of the Constitution of South Africa
and, therefore, invalid.

10.3 UNLAWFUL PROVISIONS AND THE EFFECT OF THEIR

INCLUSION(S 90 OF THE NCA)
The NCA sets out a number of unlawful provisions of credit agreements. We are only
mentioning some of the most important prohibitions. These include the following:

list of most • any “contracting out” of the NCA, setting aside or overriding any provision of the
important NCA, waiving a consumer’s right under the NCA, or avoiding a credit provider’s
prohibited terms
obligation under the NCA,
• an authorisation to the credit provider to do anything that it is unlawful under
the NCA,
• a waiver of any common law rights that may be applicable to the agreement and
that the Minister has prescribed in the Regulations. The Minister prescribed
three rights that may not be waived. However, none of the naturalia applicable to
contracts of sale and lease has been included in this prescribed list,
• a term that would exempt the credit provider from liability (or limit such liability)
for (i) any act, omission or representation by a person acting on behalf of the
credit provider or (ii) any guarantee or warranty that would, in the absence of
such term, be implied in the credit agreement. Otto (NCA 54) argues that the
second provision would refer to warranties that are implied by common law and
would preclude the credit provider (as seller) from including a voetstoots clause or
a pactum de evictio non praestanda in the credit agreement,
• any acknowledgement by the consumer that no representations or warranties
were made by or on behalf of the credit provider,
• any agreement by the consumer to forfeit money to the credit provider if the
consumer seeks lawfully to rescind the agreement,

56
 STUDY UNIT 10: Unlawful agreements and provisions

• the appointment of the credit provider, or a person named by him/her to be the

agent of the consumer for any purpose other than that expressly provided for in
the NCA, under the agreement,
• any pre-authorisation by the consumer to the credit provider to enter premises
for enforcement, granting a power of attorney to the credit provider, signing
any enforcement documentation in advance, authorising the credit provider to
do anything contrary to the NCA, or consenting to a pre-determined cost of
enforcement,
• any agreement by the consumer to deposit with the credit provider or an agent,
any identity document, PIN, bank access card or similar payment device, or give
authority to a credit provider to use such a document or device on behalf of the
consumer, or
• a statement that the interest rate is variable, unless the rate is tied to a fixed
reference rate as stipulated in the agreement.
effect of an If an agreement contains an unlawful provision, a court may either sever that unlawful
unlawful provision provision from the agreement, alter the provision to the extent required to render
in a credit it lawful if it is reasonable to do so (taking into account the agreement as a whole),
agreement
or declare the entire agreement unlawful as from the date that the agreement took
effect, and make any order which is just and equitable in the particular circumstances
(s 90 (4)).

ACTIVITY
Reread the set of facts at the beginning of study unit 4 on page 26 and advise
Lesedi on the validity of the voetstoots clause.

10 FEEDBACK
See 10.3 above. A term that would exempt the credit provider from liability (or
limit such liability) for any guarantee or warranty that would, in the absence of
such term, be implied in the credit agreement, is prohibited in terms of the NCA.
In this context, according to Otto (NCA) (as well as Kelly-Louw Consumer credit
regulation 202), the inclusion of a voetstoots clause is prohibited. A court may
either sever that unlawful provision from the agreement, alter the agreement to
the extent required to render it lawful, or declare the entire agreement unlawful as
from the date that the agreement took effect. In this factual scenario the court will
most probably sever the voetstoots clause from the rest of the agreement. Lesedi
can, therefore, still hold the credit provider liable for the latent defects.

NB: A voetstoots clause is perfectly valid and enforceable in terms of the common
law, but in this study unit you learnt that the NCA prohibits certain provisions. Later
in this study guide, you will learn that the Consumer Protection Act 68 of 2008
contains similar prohibitions. At first, you have to identify that this agreement is an
agreement regulated by the NCA. Is the Consumer Protection Act 68 of 2008 also
applicable? Motor Finance can be seen as a supplier of goods, and Lesedi can be
seen as a consumer, and this relates to a transaction where “goods” are supplied;
but section 5(2)(d) of the Consumer Protection Act 68 of 2008 provides that it
does not apply to transactions where the NCA applies to a specific transaction.
Therefore, in this instance, the NCA determines whether a voetstoots clause
is allowed or not. This will become more dear to you after you have studied
study unit 18 below.

LPL4801/3 57
 THE NATIONAL CREDIT ACT 34 OF 2005

11 STUDY UNIT 11
Pre-agreement requirements (s 92 of the NCA)

Reread the factual scenario at the beginning of study unit 4 on page 26 . Lesedi
wants to know what her pre-contractual rights are in terms of the credit agreement
that she has concluded.

OVERVIEW
This constitutes an extremely important section of the NCA. The requirements
with regards to pre-agreements are aimed at avoiding reckless credit and
over-indebtedness. The NCA requires pre-agreement disclosure statements that
include the main features of the proposed agreement, and a cost quotation of the
credit, which is binding on the credit provider for five days.

CONTENTS

11.1 PRE-AGREEMENT DISCLOSURE REQUIREMENTS

11.2 FORM OF CREDIT AGREEMENTS (S 93 OF THE NCA)
11.2.1 Small agreements
11.2.2 Intermediate agreements and large agreements
11.3 EFFECT OF NON-COMPLIANCE

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• discuss and explain the provisions of the NCA regarding disclosure prior to the
conclusion of credit agreements
• set out, in very broad terms, the provisions in the NCA regarding disclosure for
the different forms of credit contracts
• set out the protection provided to consumers regarding disclosure of the cost of
credit in terms of the NCA

11.1 PRE-AGREEMENT DISCLOSURE REQUIREMENTS

aim of pre- The requirements regarding pre-agreements are aimed at avoiding reckless credit
agreement and over-indebtedness. The NCA requires pre-agreement disclosure statements that
disclosure
include the main features of the proposed agreement, and a cost quotation of the
credit, which is binding on the credit provider for five business days.

small credit For a small credit agreement, the credit provider must give the consumer a pre-
agreements: Form agreement statement and a quotation on the prescribed form. In terms of the published
20
Regulations such statement must be in the format of Form 20 and must contain all
of the information required on that form.

58
 STUDY UNIT 11: Pre-agreement requirements (s 92 of the NCA)

large and For large or intermediate agreements, the credit provider must give the consumer a
intermediate pre-agreement statement in the form of the proposed agreement or in another form,
agreements:
Regulation 31
addressing the matters prescribed by the NCA and a quotation on the prescribed
form. Regulation 31 prescribes an extensive list of information that must be in the
proposed agreement, as discussed below.

content of In very broad terms, the quotation must set out the following:
quotation
• the principal debt, and the proposed distribution of that amount,
• the interest rate and other credit costs,
• the total cost of the agreement, and
• the basis of any costs that may be assessed if the consumer rescinds the contract.

five day period For a period of five business days after the date on which a quotation is presented
after quotation is
presented
• in case of a small agreement, at the request of the consumer, the credit provider
must enter into the contemplated credit agreement at or below the interest rate
or credit cost quoted, subject only to certain exemptions, and
• with regard to an intermediate agreement, the credit provider must, at the request
of the consumer, enter into the contemplated credit agreement at an interest rate
or credit cost that is at or below the interest rate or credit cost quoted; or that is
higher than the interest rate or credit cost quoted by a margin no greater than the
difference between the respective prevailing bank rates on the date of the quote,
and the date the agreement is made, subject to certain exemptions.

These provisions do not apply where the credit provider has only indicated to
a prospective consumer a willingness to enter into a hypothetical future credit
agreement generally or up to a specified maximum value.

11.2 FORM OF CREDIT AGREEMENTS (S 93 OF THE NCA)

11.2.1 Small agreements

Small agreements — the form of credit agreements is prescribed in Form 20.

FORM 20

PRE-AGREEMENT STATEMENT AND QUOTATION FOR SMALL

CREDIT AGREEMENTS in terms of section 92 of the National Credit Act 34
of 2005

NCR number: Form 20

Name of credit provider: Name of consumer:
Physical address: Physical address:
Contact number of credit provider: Contact number of consumer:
Date: Id No/CIPRO/registration number:

LPL4801/3 59
 SUMMARY

Credit advanced/value of goods Instalment, including interest, fees & credit

life insurance,
or services R Excluding optional insurance R
provided on
credit
Deposit, to R Number of instalments
be paid &
deducted
Instalments specify: monthly/ Total of all instalments,
payable weekly/other including interest, fees &
credit life insurance, excluding
optional insurance
R Initiation fee, R Annual
charged up Interest Rate
front:
% Monthly R Credit life
service fee, insurance,
included in included in
instalment instalment
R

ADDITIONAL INFORMATION

PART A: Additional charges, per section 102(b)–( f )

Total of additional charges, which will be included in the account, and R

have been included in the calculation of the instalment:
Additional charges, per section 102(b) to (g)

PART B: Optional items

OPTIONAL ITEMS, WHICH WILL BE

ADDED TO INSTALMENT
Additional monthly premium for R
optional insurance
Description of optional insurance:

PART C: Security provided PART D: Repayment arrangements

{Description of security required & of {Information regarding payments,

conditions under which possession including method of payment, date
would occur} of the fi rst payment and date of last
payment}

60
 STUDY UNIT 11: Pre-agreement requirements (s 92 of the NCA)

PART E: Further information on rights and obligations

Further information on significant rights or obligations imposed on the consumer

Signature: .................................................. ..................................................................

Credit Provider Representative Consumer

11.2.2 Intermediate and large agreements

Intermediate and large agreements must be on the prescribed form, if any, or if there
is no form, must contain any requirements that are prescribed and must comply with
Regulation 31.

regulation 31 The following requirements are prescribed in terms of section 93 of the NCA in
respect of all categories of intermediate and large agreements including developmental
credit agreements:

format and • All the information that is disclosed in a credit agreement must be comprehensive,
language clear, concise and in plain language.
• The credit agreement may be set out in one or more documents provided that if it
is set out in more than one document, the document signed by the consumer must
incorporate all other documents by clear reference, and a copy of all documents
must be given to the consumer.
• The lettering of the credit agreement must be legible and clear enough to ensure
that it remains legible and clear if photocopied, scanned or faxed.
• The lettering of the matters that are required to be disclosed in terms of
sub-regulation (2) must be given equal prominence in the body of the document.
cost of credit • If the quotation does not form part of the credit agreement, the information
on first page of that is required to be disclosed in the quotation must be disclosed in the credit
agreement if no
quotation is used
agreement on the first page of the agreement in a bordered tabular format titled
“Cost of Credit”.
• In the Cost of Credit table, the credit provider must also disclose the information
prescribed in sub-regulation (2)( j) and (k).
content required • Intermediate and large agreements must contain the following information, if
applicable: the type of agreement; the credit provider’s name, contact details and
registration number with the NCR.
cost of credit It is obviously of utmost importance that the consumer is fully abreast with the
total cost of credit. The following information regarding the cost of credit should
be reflected in the agreement:
• A detailed breakdown of the total cost of credit, reflecting all the following
information:
(i) The amount of the principal debt, including the amount deferred
in terms of the credit agreement as well as the nature and amount of
the following fees and charges where they have been included in the
principal debt in terms of the credit agreement:
(aa) the cost of an extended warranty agreement,
(bb) delivery, installation and initial fuelling charges, limited to the
actual cost of these items,
(cc) connection fees, levies or charges, and
(dd) taxes, license or registration fees.

LPL4801/3 61
 (ii) If the amount deferred in terms of the credit agreement is not ascertainable,
the maximum amount deferrable.
(iii) The proposed distribution of the principal debt and to whom each
amount is to be paid.
(iv) If the distribution of the amount deferred in terms of the credit agreement
is subject to conditions, such conditions.
(v) If the credit is provided by the supplier of goods, immovable property or
services, the cash price of such goods, immovable property or services.
(vi) The amount of any initiation fee.
(vii) The option of having the initiation fee paid upfront.
(viii) The amount of any service fee.
(ix) The basis upon which the service fee is payable, if annual, an indication
that it will be added to the outstanding balance.
(x) The annual rate at which interest is levied in respect of the agreement,
expressed as a percentage and calculated in accordance with Regulation
40.
(xi) The rand amount of interest charges over the term of the agreement,
based on the rate at inception of the agreement in the case of a variable
interest rate.
(xii) Whether the interest rate is fixed or variable and, if variable, the reference
rate to which the interest rate is fixed.
(xiii) The nature of any insurance contract entered into, pursuant to section
106 of the NCA.
(xiv) The nature of any additional insurance contract entered into, pursuant
to section 106 of the Act.
(xv) The cost to the consumer of the insurance provided.
(xvi) The amount of any fee, commission, remuneration or benefit receivable
by the credit provider or any other person in relation to the insurance
(xvii) The consumer’s right to waive a policy proposed by the credit provider
and substitute a policy of the consumer’s own choice, subject to section
106 of the NCA.
(xviii) The cost of additional insurance and whether such cost is charged by
monthly or annual premiums.
(xix) The amount of any default administration charges, which may be imposed
on default by the consumer, or the manner in which such charges will
be calculated.
(xx) The circumstances in which such default administration charges will be
imposed.
(xxi) The amount of any collection costs that may be charged in respect of
the enforcement of a consumer’s monetary obligations in terms of the
credit agreement, or the manner in which such costs will be calculated.
(xxii) The circumstances in which such collection costs will be charged.
• All fees levied by the credit provider must be disclosed in the agreement, together
with the date on which they will be levied and any other information relating to
the charging of such fees.
estimated fees • If the amounts that have to be disclosed are not ascertainable, the credit provider
must disclose such amounts based on estimated information, provided that such
estimates are reasonable in the circumstances of the proposed credit agreement.
• If the amounts disclosed are based on estimated information, the credit provider
must clearly disclose this to the consumer by indicating which amounts are based
on estimated information and disclosing such estimated information.

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 STUDY UNIT 11: Pre-agreement requirements (s 92 of the NCA)

• The sum of the amounts disclosed in respect of the initiation fee, service fee,
interest and cost of credit insurance, provided that, to the extent that any amount
is not ascertainable, the credit provider must clearly indicate the method of
calculating the amount.
• The sum of the principal debt, initiation fee, service fee, interest and cost of credit
insurance, provided that, to the extent that any amount is not ascertainable, the
credit provider must clearly indicate the method of calculating the amount.
variable interest • If the interest rate or credit fees and charges that are payable in terms of the
rates agreement may be changed, a statement to that effect must be disclosed, together
with the manner and the time frames within which the consumer must be notified
of any changes to the interest rate or fees and charges in accordance with section
104 of the NCA.
repayments • The amount of the repayment(s) or, if not a fixed or determinable amount, the
method of calculating the repayment amount.
• If fixed or determinable:
(i) the number of repayments,
(ii) the frequency of the repayments,
(iii) when the first repayment is due,
(iv) if all repayment amounts are not equal, how will they differ,
(v) the total amount of all repayments, and
(vi) the term or duration of the agreement.
statements of • The frequency with which the consumer will be provided with a statement of
account account.
• The manner in which the statement will be provided.
details of security • If the credit provider has taken any form of security or mortgage in respect of
of the loan the repayment of the loan, a description of the security or asset mortgaged.
default provisions • Details of the implications of default by the consumer.
• Details of the process that will be followed on default.
reporting • A statement notifying the consumer as comprehensively as reasonably possible
procedures and about the information sharing practices in credit reporting, containing the
consumer’s right to following information:
view reports
(i) confirmation by the consumer that the credit provider may transmit to
the credit bureau, data about the application, opening and termination
of an account,
(ii) the fact that information on non-compliance with terms and conditions
of the credit agreement is transferred to the credit bureau,
(iii) the name and contact details of the credit bureau or credit bureaux to
which the information is transferred, and
(iv) the fact that the credit bureau provides a credit profile and possibly a
credit score on creditworthiness of the person subject to the record.
• A statement of the consumer’s right to
(i) contact the credit bureau,
(ii) have the credit record disclosed, and
(iii) correct inaccurate information.
section 121
and section
• If applicable, the consumer’s right to rescind the credit agreement in terms of
122 remedy:
section 121 of the NCA (as discussed in study unit 14 below).
termination of
agreement by
• The right of the consumer to terminate the credit agreement in terms of section
consumer
122 of the NCA (as discussed in study unit 14 below).
consumer’s right to
settle agreement
• A statement of the consumer’s or guarantor’s right to settle the agreement, together
with an explanation of the manner in which the amount required to settle the
credit agreement is calculated in terms of section 125 of the NCA, or to make

LPL4801/3 63
 prepayments of amounts in terms of section 126 of the NCA (as discussed in
study unit 15 below).
section 123 of the • The right of the credit provider to terminate the credit agreement in terms of
NCA section 123 of the NCA (as discussed in study unit 14 below).
disputes • A statement of the consumer’s right to
(i) resolve a complaint by way of alternative dispute resolution,
(ii) file a complaint with the NCR, or
(iii) make an application to the Tribunal.
• Contact details of the National Credit Regulator and the Tribunal and, in the case
of the credit provider being a regulated financial institution, the contact details
of the adjudicator responsible for that institution.
location of goods, • If applicable, the consumer’s obligations to disclose the location of goods in terms
surrender of goods, of section 97 of the NCA.
reporting of theft
• If applicable, the consumer’s right to surrender goods in terms of section 127 of
the Act together with a description of the process to be followed in surrendering
goods in terms of section 127 of the NCA.
• If applicable and as prescribed in terms of section 94 of the NCA, the contact
number at which a consumer may report the loss or theft of a card, personal
identification number or other device, and the extent of the consumer’s liability
for purchases charged to that facility after the card, personal identification code
or number or other device has been lost or stolen.
consumer’s right • A statement of the consumer’s right to apply to a debt counsellor to be declared
to apply to debt over-indebted in terms of section 86 of the NCA, and the process to be followed.
counsellor

11.3 EFFECT OF NON-COMPLIANCE

effect of In the instance of non-compliance of the above requirements, the validity of the
non-disclosure? agreement is not affected (Kelly-Louw Consumer credit regulation 206). However, the
credit provider may receive a substantial fine (s 151; Kelly-Louw Consumer credit
regulation 206) and risks cancellation of his/her/its registration with the NCR (s 57;
Kelly-Louw Consumer credit regulation 206).

ACTIVITY
Reread the scenario at the beginning of study unit 4 on page 26.

Please advise Lesedi on the following:

(a) whether the NCA is applicable to the agreement.

(b) his pre-contractual disclosure rights against Motor Finance (a division
of SA Bank Ltd).

11 FEEDBACK
The logical starting point, before you attempt to answer this question, is to identify
whether the NCA is applicable in this instance. After you have done this, you must
identify the size of the agreement to determine the pre-agreement requirements, in
order to identify the type of disclosure needed. Then briefly discuss the necessary
disclosure requirements; as well as the effect of non-compliance.

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 THE NATIONAL CREDIT ACT 34 OF 2005

12 STUDY UNIT 12
Rate of interest, fees and charges (s 100 of
the NCA)
Anneke has bought a new hi-fi set from Music World. The purchase price is R5 000,
which she will pay off in 24 monthly instalments. An interest rate of 30% per annum
is payable on the outstanding amount. Anneke is told by a friend that such an interest
rate is quite steep. Two days after signing the agreement she comes to see you as
her attorney and wants to know from you whether this high interest rate is allowed
in terms of the NCA.

OVERVIEW
This section deals with the consumer’s liability for interest, charges and fees payable
to the credit provider. These fees are strictly controlled in terms of the NCA. It is
no longer possible for credit providers to charge extraordinarily high interest rates.
The seller’s contractual freedom is curbed to a certain extent.

CONTENTS
12.1 MAXIMUM RATE OF INTEREST, FEES AND CHARGES (SS100–105
OF THE NCA)
12.2 CREDIT INSURANCE (S 106 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain which charges are prohibited

• explain the NCA’s provisions regarding the cost of credit
• explain the NCA’s provisions regarding the levying of interest
• explain the NCA’s provisions regarding credit insurance

12.1 MAXIMUM RATE OF INTEREST, FEES AND CHARGES

(SS 100–105 OF THE NCA)
maximum interest This part of the NCA is only applicable to consumers who are natural persons.
rates, fees and Where the consumer is a small juristic person, these restraints do not apply at all
charges:
only applicable to (see s 6(d) of the NCA).
natural persons
regulation of fees The NCA is prescriptive regarding the fees that a credit provider may charge a
consumer: A credit agreement may not require payment by the consumer of any
money or other consideration except the principal debt, initiation fee, service
fees, interest and cost of credit insurance, default administration charges and
collection costs. The following definitions are provided in section 1 of the NCA:
definition of “Principal debt” is the amount deferred in terms of the agreement (e.g., the cash
principal debt
amount lent to the consumer or the cash price of the thing sold in terms of an
instalment agreement), but the credit provider may, in the case of instalment

LPL4801/3 65
 agreements, leases, mortgage agreements and secured loans, include the
following in the principal debt:
(a) the initiation fee,
(b) the cost of an extended warranty,
(c) delivery, installation and initial fuelling charges,
(d) connection fees, levies or charges, and
(e) taxes or licence or registration fees; and credit insurance premiums (ss
101 and 102 of the NCA and Otto NCA 90).
These items should obviously only be added to the principal debt if the credit provider
has himself/itself paid for these expenses in advance, or will pay for the same on
behalf of the consumer (Otto NCA 91).

EXAMPLE
George and Ezra buy a new house and register a first mortgage bond over the house
in favour of B Bank. The loan amount is R300 000, which equals the cost of the
house. However, an additional initiation fee of R5 700 is charged by the bank, to-
gether with the bond registration costs of R3 700. B Bank can pay this in advance
on behalf of George and Ezra, resulting in the principal debt now being R309 400.

initiation fee • An “initiation fee” is defined as meaning “a fee in respect of costs of initiating
a credit agreement, and—(a) charged to the consumer by the credit provider;
or (b) paid to the credit provider by the consumer upon entering into the credit
agreement”.
EXAMPLE
When buying a motor vehicle on credit, or when entering into a mortgage loan
agreement with a bank, the credit provider usually charges an initiation fee for the
administrative costs pertaining to the agreement.

service fee • The NCA defines a “service fee” as “a fee that may be charged periodically by a
credit provider in connection with the routine administration cost of maintaining
a credit agreement”. The Regulations set the maximum monthly service fee for
a credit agreement at R50.

EXAMPLE
When entering into a mortgage loan agreement with a bank, the bank usually charges
a monthly amount as service fees.

interest rates RR: “repo rate”

• In terms of the Regulations, the maximum interest rate that can be charged for a
credit agreement is calculated according to a formula where RR is the reference
rate, being the ruling South Africa Reserve Bank Repurchase Rate (the “repo
rate”), as at the time that the credit agreement is entered into.
do not confuse In simple terms, this is the interest rate in terms of which the Reserve Bank lends
repo rate with money to the banks. Do not confuse this with “prime rate”, as this refers to the
prime rate reference rate that the banks charge the public, when members of the public borrow
money from the banks. The term originally indicated the interest rate at which banks
lent to favoured customers with good credit standing, but this is no longer always the
case. Some variable interest rates may be expressed as a percentage above or below
prime rate. For instance, the bank may lend you money at prime plus 2%, and so on.

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 STUDY UNIT 12: Rate of interest, fees and charges (s 100 of the NCA)

EXAMPLE
At the time of writing, the RR rate was 8% per annum, while the prime rate was
set at 11.50% per annum.

default • “Default administration charge” is defined to mean “a charge that may be

administration imposed by a credit provider to cover administration costs incurred as a result
charge of a consumer defaulting on an obligation under a credit agreement”. In terms
of the Regulations, default administration charges are limited to the “amount
payable in respect of a registered letter of demand in an undefended action in
terms of the Magistrates’ Court Act 32 of 1944, in addition to any reasonable and
necessary expenses incurred to deliver such letter”.
collection costs • “Collection costs” mean an amount that may be charged by a credit provider
in respect of enforcement of a consumer’s monetary obligations under a credit
agreement, but does not include a default administration charge. In terms of the
Regulations, “collection costs may not exceed the costs incurred by the credit
provider in collecting the debt (a) to the extent limited by Part C of Chapter 6
(Debt enforcement by repossession or judgment) of the NCA and (b) in terms
of the Supreme Court Act 59 of 1959, the Magistrates’ Court Act 32 of 1944, the
Attorneys Act 53 of 1979 or the Debt Collector’s Act 114 of 1998” as applicable.

statutory in duplum In terms of section 103(5) of the NCA, the aggregate of the interest, initiation fee,
rule service fees, credit insurance, default administration charges and collection costs that
accrue during the time of a consumer’s default may not exceed the unpaid balance
of the principle debt at the time of the default. This provision can be seen as an
extension and codification of the common law in duplum rule. The common law rule
states that arrear and unpaid interest on a debt ceases to accumulate once it reaches
the amount of the capital amount. In other words, the outstanding balance (capital
plus interest) cannot exceed double the amount of the capital.
In terms of the common law the in duplum rule operates as a moratorium, because
as soon as the debtor makes payments reducing the balance to less than double the
capital amount, interest accumulates until it once again equals the amount of the
outstanding capital.
court’s In National Credit Regulator v Nedbank Ltd 2011 3 SA 581 (SCA), the court held that
interpretation of section 103(5) of the NCA does not merely provide for a moratorium on payments
section 103(5) of
while the buyer is in default. The court held that once a consumer defaults with his
the NCA
scheduled repayments, and the total charges referred to in section 103(5) of the NCA
equal in aggregate the amount of the unpaid balance, no further charges or interest
may be levied. This is therefore a clear distinction from the common law principle.
This means that the credit provider cannot levy any further interest or charges, even
where the consumer makes further payments reducing the outstanding balance.

summons and in The Constitutional Court has further made an important decision regarding the in
duplum duplum rule, namely, that when summons is issued in a litigation case, the in duplum
rule is not suspended (Paulsen case). The NCA was, however, not applicable to the
agreement before the court. Before this Constitutional Court ruling, when a summons
was issued, interest could accumulate again, beyond the outstanding capital amount.
The Regulations prescribe the following maximum interest rates and fees:
Maximum prescribed interest and initiation fees
(1) The following maximum rates of interest will apply:

LPL4801/3 67
 Table A: Maximum Prescribed Interest Rates

Subsector Maximum Prescribed Interest Rate

Mortgage agreements RR + 12% per year

Credit facilities RR + 14% per year

Unsecured credit transactions RR + 21% per year

Developmental credit agreements RR + 27% per year

for the development of a small
business and for low income housing
(unsecured)

Short-term credit 5% per month on the first loan and 3% per month
transactions on subsequent loans within a calendar year.

Other credit RR + 17% per year

agreements

Incidental credit 2% per month

agreements

Where,

(a) RR indicates the reference rate, being the ruling SA Reserve Bank
Repurchase Rate, and
(b) the interest rate on short-term credit transactions and incidental credit
agreements must be disclosed as a monthly interest rate, in such disclosure
as is required by the NCA and these regulations.

(2) The following maximum limits will apply to initiation fees:

Table B: Maximum Initiation Fee

Subsector Maximum Initiation Fee

Mortgage agreements (a) R1 100 per credit agreement,

plus 10% of the amount of the
agreement in excess of R10 000
(b) But never to exceed R5 250.

Credit facilities (a) R165 per credit agreement,

plus 10% of the amount of the
agreement in excess of R1 000
(b) But never to exceed R1 050.

Unsecured credit transactions (a) R165 per credit agreement,

plus 10% of the amount of the
agreement in excess of R1 000
(b) But never to exceed R1 050.

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 STUDY UNIT 12: Rate of interest, fees and charges (s 100 of the NCA)

Developmental credit agreements (a) R275 per credit agreement,

for the development of a small plus, 10% of the amount of the
business agreement in excess of R1 000
(b) But never to exceed R2 600.

Developmental credit agreements (a) R550 per credit agreement,

for low income housing plus, 10% of the amount of the
(unsecured) agreement in excess of R1 000
(b) But never to exceed R2 600.

Short-term credit transactions (a) R165 per credit agreement,

plus, 10% of the amount of the
agreement in excess of R1 000
(b) But never to exceed R1 050.

Other credit agreements (a) R165 per credit agreement,

plus, 10% of the amount of the
agreement in excess of R1 000
(b) But never to exceed R1 050.

Incidental credit agreements Nil

(Where the amount of the agreement is the amount deferred in terms of the agreement.)

12.2 CREDIT INSURANCE (S 106 OF THE NCA)

insurance for A credit provider may require the consumer to maintain sufficient credit, life insurance
security granted to or cover against loss or damage to property, to be pledged as security to the credit
credit provider provider.

In addition to the insurance referred to above, a credit provider may offer a consumer
optional insurance in relation to the obligations of the consumer under the credit
agreement or relating to the possession, use, ownership or benefits of the goods or
services supplied in terms of the credit agreement.

A credit provider must not offer or demand that the consumer purchase or maintain
insurance that is unreasonable or at a cost to the consumer that is unreasonable,
having regard to the actual risk and liabilities involved in the credit agreement.

The Minister may, in consultation with the Minister of Finance, prescribe the
limit in respect of the cost of credit insurance that a credit provider may charge a
consumer (s 106 (8)). At the time of writing this, the Minister has in fact published
draft regulations in the Government Gazette in November 2015, which propose to limit
and regulate insurance costs (GN1104 GG 39407)

consumer’s policy A credit provider must provide the consumer with the right to waive a proposed
of choice policy and substitute a policy of his/her own choice and inform him/her of that right.
A policy offered by the credit provider must provide for the payment of premiums
for the duration of the credit agreement on a monthly basis in the case of small and
intermediate agreements and on either a monthly or annual basis in the case of large
agreements.

Where a credit provider provides a policy of insurance to a consumer in respect of a

credit agreement, the credit provider must not add any surcharge, fee or additional

LPL4801/3 69
 premium above the actual cost of insurance and must disclose to the consumer the
cost of the insurance supplied and the amount of any fee, commission, remuneration
or benefit received by the credit provider. Furthermore, the terms and conditions of
the policy must be explained to the consumer and the credit provider may only be a
beneficiary under the policy up to the settlement value on the event of the insured
contingency.

Where the consumer exercises his/her right to substitute an alternative policy, the
credit provider may require the consumer to provide a valid direction permitting
the credit provider to pay any premiums in terms of that policy and to recover such
premiums paid from the consumer and a valid direction naming the credit provider
as a beneficiary under the policy to the extent of the settlement value on the event of
an insured contingency and requiring the insurer to settle the consumer’s obligation
under the credit agreement, as a first charge against the proceeds of that policy.

ACTIVITY
Reread the factual scenario at the beginning of this study unit on page 65. Then
advise Anneke whether or not she has a remedy.

12 FEEDBACK
Please see 12.1 above.

HINT: You will fi rst have to ascertain whether the NCA is applicable to this
transaction. If you are satisfi ed, you then have to identify the type of credit
transaction. After you have done this, you may look at the interest rate table to
identify the highest interest rate that can be charged. It seems like the interest
rate is within the accepted norm.

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 THE NATIONAL CREDIT ACT 34 OF 2005

13 STUDY UNIT 13
Alteration of credit agreements (ss 116–120 of
the NCA)

Grace receives an SMS on her cell phone that Better Clothing has extended her credit
limit from R1 000 to R5 000. Are these practices allowed in terms of the NCA?

OVERVIEW
The NCA’s protection extends to controlling amendments effected to signed credit
agreements.

CONTENTS
13.1 GENERAL
13.2 CREDIT FACILITY (S 118 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the NCA’s provisions regarding amendments to signed credit agreements

• explain the NCA’s provisions regarding reductions to credit limits in terms of a
credit facility
• explain the NCA’s provisions regarding increases in credit limits in terms of a
credit facility

13.1 GENERAL
alterations to credit Alterations made to a credit agreement after it has been signed are void, unless the
agreements change reduces the consumer’s liability, or the consumer ratifies the change by either
signing or initialling next to the amendment.

The credit provider and a consumer may also agree to alter the terms of a credit
agreement.

13.2 CREDIT FACILITY (S 118 OF THE NCA)

reducing credit A consumer may at any time, by written notice to the credit provider, request that
limit any time by the credit limit under his/her facility be reduced, and may stipulate a maximum
consumer
credit limit. The credit provider must confirm in writing the new credit limit, which
must not exceed the stipulated amount, and state the date on which the new limit
will take effect.

LPL4801/3 71
reducing or The credit provider may, subject to the protection against discrimination in respect
extending the of credit and the consumer’s rights, by written notice to the consumer, reduce the
credit limit by the
credit provider
consumer’s credit limit.

The credit provider may not increase a credit limit under a credit facility unless the
increase is temporary or the consumer agrees to the increase either orally or in writing.

There is one exception to the above discussed limitation on increases to credit limits.
If the consumer, at the time of applying for the credit facility, or in writing at a later
date, has specifically requested the option of having the credit limit automatically
increased from time to time, the credit provider may unilaterally increase the credit
limit under that credit facility at stipulated intervals.

ACTIVITY
1. Explain the consequences to amending a credit agreement after it has been
concluded.
2. Reread the factual scenario at the beginning of this study unit on page 71.
Advise Grace.

13 FEEDBACK
(1) See 13.1 above. It will be null and void, unless ratified by signature by the
consumer, or agreed upon by both parties.
(2) See 13.2 above. Note the different rules applicable to the consumer on the
one hand, and the credit provider on the other.

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 THE NATIONAL CREDIT ACT 34 OF 2005

14 STUDY UNIT 14
Rescission and termination of credit
agreements (ss 121–123 of the NCA)

Joshua has bought a new vacuum cleaner from Swoop Scoop, a company selling
vacuum cleaners door-to-door. Joshua and the agent of Swoop Scoop agree that the
vacuum cleaner will be paid off in 12 equal instalments, which will include interest
at 8% per annum on the outstanding amount. Joshua realises the next day that he
has paid far too much for the vacuum cleaner, as he has now seen the same one at
a popular retailer for far less. He, therefore, wants to know whether he can escape
liability without breaching the agreement.

OVERVIEW
In this study unit you will learn that the NCA protects consumers in so far as they
have a “cooling off” period regarding certain credit agreements, which means that a
consumer sometimes has the opportunity to change his/her mind about concluding
a credit agreement. This provision is a drastic amendment to the normal common
law rules relating to the law of contracts. Normally, parties are bound to a contract
they have voluntary and willingly entered into. A similar cooling-off right is also
created by the ALA (see study unit 1 above) and the Consumer Protection Act 68
of 2008 (see study unit 19 par 19.2 below).

CONTENTS
14.1 CONSUMER’S RIGHT TO RESCIND AND TERMINATE AN
AGREEMENT (SS 121 & 122 OF THE NCA)
14.2 TERMINATION OF AN AGREEMENT BY THE CREDIT PROVIDER
(S 123 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the consumer’s right to resile from a credit agreement in terms of the
“cooling off” period
• explain the consumer’s right to terminate a credit agreement in general
• explain the credit provider’s right to terminate a credit agreement

14.1 CONSUMER’S RIGHT TO RESCIND AND TERMINATE AN

AGREEMENT (SS 121 AND 122 OF THE NCA)
section 121: Section 121 of the NCA makes provision for a “cooling-off” period regarding certain
consumer’s credit agreements: The consumer may terminate an instalment contract or lease
cooling-off
right: instalment of goods concluded at any location other than the registered business premises
contracts and of the credit provider within five business days after concluding the agreement
leases

LPL4801/3 73
 by delivering a notice to the credit provider, and tendering any goods or the
return of money to the credit provider or paying in full for any services received by
the consumer. This section does not apply to non-returnable goods.

section 122: A consumer may terminate any other credit agreement at any time by paying,
consumer’s with or without advance notice to the credit provider, the settlement amount or, in
termination of any
the case of an instalment contract and secured loans or leases, by surrendering the
other contract
goods that are the subject of the agreement, or by paying the remaining amount
demanded if the goods are returned and sold by the credit provider and the amount
realised does not satisfy the outstanding debt.

14.2 TERMINATION OF AN AGREEMENT BY THE CREDIT

PROVIDER (S 123 OF THE NCA)
section 123: credit Whether the credit provider is entitled to cancel or terminate the credit agreement
provider’s right of will be determined by the general principles of the law of contract. The contract
termination
must either contain a clause entitling the credit provider to cancel the agreement
no automatic right in the event of a particular breach of the contract, or the breach must be material
of cancellation to the contract. In ABSA Bank Ltd v Havenga 2010 5 SA 533 (GNP) the court held
that section 123 of the NCA prescribes further procedures that the credit provider
must follow where the credit provider is entitled to cancel the agreement. As such,
section 123 of the NCA does not afford the credit provider with a right of cancellation,
but merely prescribes the necessary procedures that the credit provider must follow
when he/she is entitled to cancel the agreement.

steps that credit Where the credit provider has a right to cancel the agreement, section 123(2) of the
provider must
NCA provides that the credit provider must take the steps set out in Part C of Chapter
take in event of
cancellation 6 of the NCA to enforce and terminate that agreement. The enforcement procedures
contained in Part C of Chapter 6 of the NCA are discussed in study unit 16 below.

consumer’s right Subject to certain restrictions, the consumer may re-instate any agreement that is
to re-instate the in default by paying all amounts that are overdue together with default charges and
agreement
reasonable costs that the credit provider may have incurred in enforcing the agreement.

In the case of a credit facility, the credit provider may suspend that credit facility if
a consumer is in default under the agreement, or close that credit facility by giving
written notice to the consumer at least ten business days before the credit facility
will be closed or suspended.

The credit facility remains in effect to the extent necessary until the consumer has
paid all amounts lawfully charged to that account.

The credit provider may not close or terminate a credit facility solely because:

• the credit provider has declined a consumer’s request to increase the credit limit,
• the consumer has declined the credit provider’s offer to increase the credit limit,
• the consumer has requested a reduction in the credit limit, unless that reduction
would reduce the credit limit to a level at which the credit provider does not
customarily offer or establish credit facilities, or
• the card, personal identification code or number, or other identification device
used to access that facility has expired.

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 STUDY UNIT 14: Rescission and termination of credit agreements (ss 121–123 of the NCA)

Importantly, the unilateral termination of a credit agreement by the credit provider

does not suspend or terminate any continuing or remaining obligations of the credit
provider to the consumer under that agreement or in terms of the NCA.

ACTIVITY
Please reread the factual scenario at the beginning of this study unit on page 73.
Then advise Joshua.

14 FEEDBACK
Identify whether the NCA is applicable to this scenario, and then determine whether
Joshua can invoke section 121 of the NCA (please refer to par 14.1 above). Look
carefully at the scenario to determine whether ALL the requirements of section
121 of the NCA have been complied with.

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15 STUDY UNIT 15
Early payments and early settlement
Sibongile receives a good bonus from her employer and decides that she is going to
pay it into her instalment contract account towards her car. The bank informs her
that she is not entitled to make extra payments and that she has to pay the purchase
price in the amount of instalments as determined in the agreement. She wants to
know if she has any remedies at her disposal.

OVERVIEW
In this section you will learn that a consumer may pre-pay or pay his/her debt in
terms of a credit agreement fully at any time.

CONTENTS
15.1 EARLY PAYMENTS (SS 125 & 126 OF THE NCA)
15.2 PAYMENTS UNDER PRESCRIBED CLAIMS (S 126B OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the consumer’s right to pre-pay any amount owed in terms of a credit
agreement
• explain the prohibition of payments in respect of prescribed claims

15.1 EARLY PAYMENTS (SS 125 AND 126 OF THE NCA)

early payments and The NCA allows the consumer to
settlements
• pre-pay any amount owing at any time, and
• to settle the account in full at any time.
penalty interest With large agreements, a termination or penalty charge may be levied at either a
prescribed charge or, if no charge has been prescribed, at a charge equal to no more
than the interest that would have been payable under the agreement for a period
equal to three months. However, if the consumer gives three months’ notice, no
penalty may be charged.
EXAMPLE
If the consumer gives less than three months’ notice, penalty interest will only be
charged for the three months minus the months that notice was in fact given. (For
example, the banks always charge a termination fee or “penalty interest” when a
client pays and cancels a mortgage bond (which is always a large agreement) without
giving three months’ notice. For example, if a consumer gives one month’s notice to
the bank that his mortgage bond should be cancelled, he/she will have to pay two
months’ penalty interest.)

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 STUDY UNIT 15: Early payments and early settlement

allocation of The NCA prescribes the manner in which a credit provider must deal with any
payments by payment or prepayment made by a consumer under a credit agreement. The credit
consumer under
provider must credit each payment made under a credit agreement to the consumer
credit agreements
as of the date of receipt of the payment in the following manner:

• at first, to satisfy any due or unpaid interest charges,

• secondly, to satisfy any due or unpaid fees or charges, and
• thirdly, to reduce the amount of the principal debt.

15.2 PAYMENTS UNDER PRESCRIBED CLAIMS (S 126B OF THE

NCA)
s 126B of the NCA In terms of this section, a prescribed debt may not be sold and no prescribed debt
may be claimed or reactivated. This is to stop the practice where creditors demand
debtors to pay R1 towards a prescribed debt. Upon payment of any amount, the claim
revives in terms of the common law. However, this practice is no longer allowed
under the NCA.

ACTIVITY
Reread the scenario at the beginning of this study unit on page 76. Then give
advice to Sibongile.

15 FEEDBACK
See 15.1 above. According to section 125 and 126 of the NCA, a consumer may
settle the full outstanding amount in terms of a credit agreement at any time, or
alternatively make additional payments at any time.

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 THE NATIONAL CREDIT ACT 34 OF 2005

16 STUDY UNIT 16
Enforcement of credit agreement

Whifi Corporation seeks to enforce an agreement against one of its customers,

who bought a new fridge and failed to pay her last two instalments. The agreement
is governed by the NCA. They have instructed their attorneys to issue summons
immediately, but were advised that the consumer first needs to receive a notice of
default.

OVERVIEW
In this section you will learn what procedures must be followed by a credit provider
to enforce a credit agreement.

CONTENTS
16.1 ENFORCEMENT (SS 129 & 130 OF THE NCA)
16.2 SEARCHES (SS 153–155 OF THE NCA)
16.3 DISPUTE RESOLUTION (SS 134 & 135 OF THE NCA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the credit provider’s rights in terms of the NCA to commence legal
proceedings to enforce a credit agreement
• set out the procedures to be followed prior to debt enforcement
• briefly explain the dispute resolution alternative in terms of the NCA

16.1 ENFORCEMENT (SS 129 AND 130 OF THE NCA)

Under the common law, the credit provider has certain remedies where the consumer
has breached the contract, including a claim for specific performance or cancellation
and damages. However, the NCA prescribes further requirements before a credit
provider can enforce these remedies. For the purposes of this module, the most
relevant requirements are dealt with below.

formal procedures When a consumer is in default under the credit agreement and the credit provider
when credit wants to enforce the debt by means of legal action, the credit provider must deliver
provider enforces
credit agreement:
a section 129 notice to the consumer, thereby drawing the default to the attention
section 129 of the of the consumer in writing, and propose that the consumer refer the credit
NCA agreement to a debt counsellor, alternative dispute resolution agent, consumer
court or an ombudsman with jurisdiction. In terms of section 129(3) of the NCA,
prior to cancellation by the credit provider, the consumer is entitled to pay all the
outstanding amounts plus any additional default charges in order to “save” the
agreement.

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 STUDY UNIT 16: Enforcement of credit agreement

In terms of section 130(1)(a) of the NCA, the credit provider may not enforce a credit
agreement unless the consumer has been in default for at least 20 business days and at
least 10 business days have lapsed since the credit provider delivered the section 129
notice. These two periods may run concurrently. In National Credit Regulator v Nedbank
Ltd 2011 3 SA 581 (SCA) the court held that the section 129 notice is mandatory
and, therefore, a requirement for enforcement of the debt. However, it was recently
decided that a claim will not prescribe, or be deemed void, if summons was issued
before prescription of the claim, but section 129 of the NCA was not adhered to
(Investec Bank Ltd v Ramurunzi 2014 4 SA 394 (SCA)).

method of delivery Section 129(5) of the NCA (as amended) prescribes the particular method for delivery
of notice of the notice. This amendment follows a line of contradictory case decisions following
the prior version where no method of delivery was prescribed. (See, for instance,
Kubyana v Standard Bank of South Africa Ltd 2014 3 SA 56 (CC).)

A consumer must choose between registered mail and physical delivery. If he/she
chooses registered mail, written confirmation by the postal service or its authorised
agent of delivery to the relevant post office or postal agency will suffice.

notice not It should be noted that section 129(1) of the NCA would not be applicable to a credit
required in certain agreement where the agreement is subject to a debt restructuring order or court
circumstances
proceedings that may result in a debt-restructuring order. If the restructuring order
has been granted, the credit provider cannot enforce the agreement as long as the
consumer makes the payments as set out in the order. If the consumer defaults
in terms of the order, the credit provider may enforce the credit agreement
without delivering a section 129 notice (Otto NCA 113; Ferris v First Rand Bank
Ltd and 2014 3 SA 39 (CC)).

effect on debt If a credit provider has sent a section 129 notice to the consumer in the prescribed
review manner before the consumer initiates a debt restructuring application, the consumer
would not be able to apply for a debt restructuring order in respect of that particular
credit agreement (s 129(1)(a) read with s 86(2) as interpreted by the court in National
Credit Regulator v Nedbank supra). However, remember that the courts have the power
to relieve debt and to declare credit agreements reckless. Please refer back to study
unit 9, dealing with debt restructuring orders.

16.2 SEARCHES (SS 153–155 OF THE NCA)

searches by police A police officer or an inspector appointed in terms of the NCA may be granted
officers authority to enter and search any premises in terms of a warrant issued by a judge
or magistrate. The NCA circumscribes the entry and search procedures.

16.3 DISPUTE RESOLUTION (SS 134 AND 135 OF THE NCA)

dispute resolution Ombudsmen, consumer courts and alternative dispute resolution agents may hear
matters arising from the NCA. Any person, not only the parties to a credit agreement,
may initiate a complaint to the NCR. The NCR may also initiate a complaint in its
own name, to the Tribunal. The 2014 Amendment Act also introduced “alternative
dispute resolution agents” to assist in dispute resolutions.

The NCR has the power to refer any matter to the National Prosecuting Authority
if it believes that an offence has been committed in terms of the NCA.

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 ACTIVITY
Reread the scenario at the beginning of this study unit on page 78. Then advise
Whifi Corporation.

16 FEEDBACK
See 16.1 above. Whifi Corporation should follow the procedures as set out in
section 129 and 130 of the NCA. Discuss and advise in full.

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 THE NATIONAL CREDIT ACT 34 OF 2005

17 STUDY UNIT 17
Offences

OVERVIEW
It is interesting to point out that non-compliance with parts of the NCA will constitute
an offence and possible imprisonment.

CONTENTS
17.1 OFFENCES (S 156–160 OF THE NCA)
17.2 PENALTIES (S 161 OF THE NCA)
17.3 JURISDICTION TO IMPOSE PENALTIES

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• identify which acts constitute offences

• identify what the possible penalties entail

17.1 OFFENCES (S 156–160 OF THE NCA)

Offences in terms of the NCA include the following:

(a) disclosure of confidential information other than in the circumstances

prescribed by the NCA,
(b) hindering, opposing, obstructing, or unduly influencing any person
who is exercising a power or performing a duty delegated, conferred, or
imposed by the NCA,
(c) failure to attend a hearing, or attending but refusing to be sworn in or
failing to produce a document as ordered, as well as failing to answer a
question fully or truthfully after being sworn in and the giving of false
evidence,
(d) failure to comply with an order of the Tribunal or attempting to influence
the Tribunal or a regulator improperly concerning any matter connected
with an investigation,
(e) anticipating any findings of the Tribunal or the NCR concerning an
investigation in a way that is calculated to influence the proceedings or
findings,
(f) interrupting the proceedings or misbehaving in a hearing, and
(g) acting contrary to a warrant to enter and search.

17.2 PENALTIES (S 161 OF THE NCA)

Penalties under the NCA vary depending on the nature of the offence.

LPL4801/3 81
 Where a person is convicted of an offence in relation to the NCR or the Tribunal,
that person is liable to a fine, or imprisonment not exceeding 10 years, or both. For all
other offences under the NCA, a convicted person is liable to a fine, or imprisonment
not exceeding 12 months, or both.

17.3 JURISDICTION TO IMPOSE PENALTIES

The NCA specifically confers on a Magistrates’ Court the jurisdiction to impose
any penalties notwithstanding anything to the contrary contained in any other law.

ACTIVITY
State the different offences and the possible penalties.

17 FEEDBACK
See 17.1 and 17.2 above.

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 THE CONSUMER PROTECTION ACT 68 OF 2008

18 STUDY UNIT 18
General background, purpose, scope and
application of the CPA

Victor bought a new motor cycle from Cyclink (Pty) Ltd and paid the full purchase
price in cash. Two weeks later the engine collapses and Cyclink informs Victor that
he has bought the motor cycle voetstoots and that it is “not afraid” of the Consumer
Protection Act 68 of 2008 (hereafter referred to as “the CPA”), as the transaction
was not subject to the CPA. Is Cyclink correct in its opinion?

OVERVIEW
In this study unit you will learn some background on the CPA and its purpose. You
will further learn how the CPA should be interpreted. Most importantly, you will
learn to which transactions the CPA applies. It is of utmost importance to be able
to identify whether a transaction is subject to the CPA or not. The CPA recognises
a number of fundamental consumer rights to give effect to its main purpose. You
will be introduced to these fundamental rights.

CONTENTS
18.1 GENERAL BACKGROUND OF THE CPA
18.2 PURPOSE OF THE CPA
18.3 INTERPRETATION OF THE CPA
18.4 SCOPE AND APPLICATION OF THE CPA
18.4.1 Definitions
18.4.2 Specific exemptions
18.4.3 Specific inclusions
18.4.4 Interplay between the common law, the CPA and other statutes
18.5 THE FUNDAMENTAL CONSUMER RIGHTS IN TERMS OF THE CPA

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• give a short background of the CPA and know the commencement date of the CPA
• explain the main purpose of the CPA
• explain the interpretation clause of the CPA
• explain the scope and application of the CPA
• list the fundamental consumer rights in terms of the CPA

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 18.1 GENERAL BACKGROUND OF THE CPA
background and The CPA became fully operational on 31 March 2011. The CPA consolidates most
commencement
of the previous consumer legislation in South Africa. The Minister of Trade and
Industry also proclaimed the CPA regulations, which became operational on 1 April
2011 (“CPA Regulations”). The CPA (read with the CPA Regulations) has far-reaching
consequences for sale agreements and, to a lesser extent, lease agreements that fall
within the ambit of the CPA. The rights of consumers are protected through the
courts and national consumer protection institutions, such as the National Consumer
Commission and the National Consumer Tribunal, established under the CPA (s 4).
Failure to comply with the provisions of the CPA may lead to the issuing of compliance
notices and eventually the imposition of fines and criminal penalties. Contractual
terms that are impermissible in terms of the CPA also may be declared void to the
extent of non-compliance of the CPA. The protection and enforcement procedures
contained in the CPA fall outside the scope of this module.

18.2 PURPOSE OF THE CPA

social and The main purpose of the CPA is to promote and advance the social and economic
economic welfare welfare of consumers in South Africa (s 3(1)). This must be accomplished by
of consumer
establishing a legal framework for the achievement and maintenance of a consumer
market that is fair, accessible, efficient, sustainable and responsible (s 3(1)(a)), by
promoting fair business practices (s 3(1)(c)) and also by protecting consumers from
unfair trade practices and conduct (s 3(1)(d)).

protection of Specifically, the CPA aims to protect the rights of vulnerable persons (s 3(1)(b)).
vulnerable persons Vulnerable persons would include persons from low-income and remote communities,
minors, seniors, persons whose ability to comprehend an advertisement, agreement or
any other visual representation is limited by a low literacy level, the visually impaired
and persons who have limited fluency in the language in which the advertisement,
agreement or other visual representation is presented.

18.3 INTERPRETATION OF THE CPA

section 2: Section 2 of the CPA prescribes the manner in which the CPA should be interpreted.
interpretation The following should be mentioned at this stage: Firstly, the CPA should be interpreted
clause
to give effect to the purposes as detailed in section 3 (s 2(1)). Secondly, when
interpreting the CPA, the interpreter may consider appropriate international law,
foreign law, international conventions, declarations or protocols relating to consumer
protection (s 2(2)). Finally, the CPA should not be interpreted in any way as to
preclude a consumer from exercising any of his/her common law rights (s 2(10)).

court’s obligations When a matter is brought before a court, the court has the following obligations in
in giving effect to terms of the CPA:
CPA

• Firstly, the court must develop the common law to improve the realisation and
enjoyment of consumer rights generally and, in particular, to improve the position
of the vulnerable persons referred to in paragraph 18.2 above (s 4(2)(a)).
• Secondly, the court must promote the spirit and purposes of the CPA (s 4(2)(b)
(i)). Section 4(3) provides that if any provision in the CPA can have more than
one meaning, the court has to prefer the meaning that promotes the spirit and
purposes of the CPA best and will best promote the realisation and enjoyment

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 STUDY UNIT 18: General background, purpose, scope and application of the CPA

of consumer rights generally and, in particular, the position of the vulnerable

persons, as mentioned above.
statutory contra • Furthermore, section 4(4)(a) of the CPA provides that when the court interprets
preferentem rule a document (including a contract or a standard form) prepared by the supplier
and there are ambiguities in the document, the document must be interpreted to
the benefit of the consumer. It has been argued that this is a confirmation (and
possible extension) of the contra proferentem rule (Jacobs, Stoop & Van Niekerk
2010 PELJ 301–307).
Where the rights of the consumer are limited in this document, the court must
interpret such limitation “to the extent that a reasonable person would ordinarily
contemplate or expect” (s 4(4)(b)), with due regard to the following factors: the content
of the document, the manner and form in which it was prepared and presented, and
the circumstances of the transaction or agreement (s 4(4)(b)(i)–(iii)).

18.4 SCOPE AND APPLICATION OF THE CPA

18.4.1 Definitions
transactions The CPA applies to every transaction occurring in South Africa, unless it is
occurring in South exempted from the operation of the CPA (s 5(1)(a)). The exemptions are discussed
Africa
below.

The word “occur” is not defined in the CPA. Bradfield & Lehmann (Sale and Lease
8) argue that “occur” should be given its normal meaning, namely, “happen” or
“take place”. As such, a sale or lease transaction would occur in South Africa if
the contract for the sale or lease is concluded or the performance in terms of the
agreement takes place in South Africa.
transaction In section 1, a “transaction” is defined as follows:

[I]n respect of a person acting in the ordinary course of business—

(i) an agreement between or among that person and one or more other
persons for the supply or potential supply of any goods or services
in exchange for consideration.

goods “Goods” have a very wide definition and include anything marketed for human
consumption, any other tangible or intangible object (e.g., music or a photograph) or
a licence to use an intangible object, a legal interest in land or any other immovable
property, (other than an interest that falls within the definition of a service)
gas, water and electricity (s 1).
EXAMPLE
A sale agreement of movable or immovable property will, therefore, constitute a
“supply of goods”.

services Likewise, “services” also have a wide definition and include the provision of any
accommodation or sustenance; access or a right of access to an event or any premises,
activity or facility, and access to or use of any premises or other property in
terms of a rental (s 1). A lease agreement of immovable property (and possibly also
movable property) will, therefore, be a “supply of services”.

supply “Supply” (used as a verb) includes selling, rental, exchange or hire, relating to
goods and the granting of access to any premises, event, activity or facility,
relating to services (s 1). Such a supply must be for consideration.

LPL4801/3 85
consideration “Consideration” is defined in section 1 of the CPA as anything of value given and
accepted in exchange for goods or services (including money) and, therefore, the
sale and lease of goods is a supply in terms of the CPA.

ordinary course of Furthermore, the supply must be in the ordinary course of business. The phrase
business “ordinary course of business” is not defined in the CPA. The same test that is applied
in other fields of our law can be applied (see Amalgamated Banks of South Africa Bpk
v De Goede 1997 4 SA 66 (SCA)), namely, whether the making of the contract falls
within the scope of that business and whether ordinary business persons would have
concluded the contract (Sharrock 2010 SA Merc LJ 295). This means that, while
the CPA will probably not affect once-off transactions for the sale of movable
and immovable property (e.g. a private sale of a house or car), it will probably
apply to the sale of land, units or houses by a developer or a car by a car dealer.
With regards to lease agreements; this question is more difficult to answer.
Please refer to Study Guide 1, study unit 3 in this regards.

suppliers and The CPA refers to the terms “suppliers” and “consumers”. A supplier is any person
consumers who markets (promotes or supplies) goods or services.

As mentioned above, “supply” includes the sale or rental of goods. Therefore, for the
purposes of this module, the supplier will generally refer to the seller or the lessor.

IMPORTANT
We refer to “supplier” throughout this discussion, but keep in mind
that it generally refers to the seller when dealing with sale or the lessor
when dealing with lease.

specific inclusion Section 5(8) of the CPA provides that the Act also applies to transactions concluded
of various suppliers by a supplier who

• resides or has its principal office within or outside the Republic,

• operates on a for-profit basis or otherwise,
• is an individual, juristic person, partnership, trust, organ of state, an entity owned
or directed by an organ of state, a person contracted or licensed by an organ of
state to supply goods or services, or a public-private partnership, or
• is required or licensed in terms of any public regulation to make the supply of
the particular goods or services available to all or part of the public.
consumer A consumer is any person to whom particular goods or services are marketed,
promoted or supplied in the ordinary course of the supplier’s business, or any
person who has entered into a transaction with a supplier in the ordinary course of
the supplier’s business (unless the transaction is exempt from the application of the
CPA). In other words, in the context of sale and lease, “consumer” will generally
refer to the buyer or the lessee.

IMPORTANT:
We refer to “consumer” throughout this discussion, but keep in mind
that it generally refers to the buyer when dealing with a sale agreement
or the lessee when dealing with a lease agreement.

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 STUDY UNIT 18: General background, purpose, scope and application of the CPA

18.4.2 Specific exemptions

exemptions from Although the CPA has a broad field of application to sale and lease agreements, the
operation of the application of the CPA is limited by a number of exemptions set out in the CPA.
CPA
The most important exemptions are discussed below.

• Goods or services supplied or promoted to the State

where the State is The CPA does not apply where the goods or services are promoted or supplied to
consumer the State. In other words, where the State is the consumer, the CPA will not apply
(s 5(2)(a)).

• Consumer is a juristic person with an asset value or annual turnover exceeding the prescribed
threshold
consumer is The CPA does not apply where the consumer is a juristic person whose asset value
juristic person with or annual turnover, at the time of the transaction, equals or exceeds the threshold
specified turnover/
value determined by the Minister, which is currently R2 million) (s 5(2)(b)). It is
asset value
important to note that for purposes of the CPA; a juristic person includes a body
corporate, a partnership, an association or a trust (s 1).

• Transactions exempted by the Minister

transactions In terms of section 5(2)(c) of the CPA, the Minister may exempt certain transactions
exempted by the from the application of the CPA in accordance with the procedures and requirements
Minister detailed in section 5(3)–(4).

• Credit agreements under the NCA

credit agreements The CPA does not apply where the transaction constitutes a credit agreement
under the NCA under the NCA, but the goods or services that are the subject of the credit
agreement are not excluded from the ambit of the CPA (s 5(2)(d)).

It is not at all clear what is meant by the above exclusion: Where a transaction is
subject to the NCA, the latter will govern the transaction primarily. For instance,
to determine whether a specific term is allowed in the agreement, one will have to
consult the NCA and not the CPA. However, what is meant by “the goods or services
are not excluded from the ambit of the CPA”? For instance, does this mean that the
consumer will still be protected by the CPA when it comes to provisions in the CPA
relating to the product or service itself? For example, will the consumer be able to
rely on the ex lege guarantees created in the CPA relating to a product? The wording
of this section indicates that this was the intention of the legislature. However, the
only case decision decided on this matter, decided otherwise.

MFC v Botha The meaning of this provision was considered in MFC (a division of Nedbank Ltd) v
Botha (6981/13) [2013] SAWCHC 107 (15 August 2013).

MFC v Botha clearly illustrates the difficulty experienced by the court when applying
section 5(2)(d) of the CPA. In this case, the bank purchased a vehicle from a car
dealership, with the purpose of selling it to Botha in terms of an instalment sale
agreement, which qualifies as a credit agreement in terms of the NCA. The credit
agreement excluded any warranty by the bank as to the condition of the vehicle. Botha
returned the vehicle to the bank because the vehicle was defective. He argued that
he was entitled to return the vehicle in terms of section 56(2) of the CPA. Section
56(2) of the CPA provides that the consumer may return goods to the supplier if
the goods fail to satisfy the required standards of quality contemplated in the CPA,
as discussed in detail in study unit 23 below.

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 The court criticised section 5(2)(d) of the CPA for the uncertainty that it created
and held that the primary role of the bank in the sale was not as supplier of the
vehicle but as credit provider and, therefore, Botha could not return the vehicle
to the bank. Botha could also not return the vehicle to the car dealer (the actual
supplier) because ownership of the vehicle vested in the bank, and it was the bank,
and not Botha, who had paid the purchase price. Furthermore, the court held that
Botha was not entitled to the relief in terms of section 56(2) of the CPA because
the contract between Botha and the bank was a credit agreement in terms of the
NCA and, therefore, excluded from the ambit of the CPA in terms of section 5(2)
(d) of the CPA.

criticism This decision is open to criticism. One could argue that, although the credit
agreement itself is excluded from the application of the CPA, the vehicle (which
is the goods in this instance) is subject to the provisions of the CPA, allowing
Botha to rely on section 56(2) of the CPA. The bank purchased the vehicle from the
car dealership and supplied it to Botha in terms of an instalment sale agreement.
Therefore, the bank is a supplier for purposes of the CPA, and Botha would have
been able to return the vehicle to the bank in terms of section 56(2) of the CPA.
The bank would then have to pursue a further possible claim against the dealer.
Although the part of the CPA dealing with fair, just and reasonable contract terms will
not apply to credit agreements that are subject to the NCA, the goods and services
should still have to comply with the CPA (Naudé & Eiselen Commentary 5–33). This
section of the CPA is badly drafted and has created many uncertainties (Naudé &
Eiselen Commentary 5–33–36).

In any event, the exclusion of any warranty by the bank as to the condition of the
vehicle in the credit agreement would qualify as an unlawful provision in terms of
section 90 of the NCA, and the bank would not be able to rely on this provision
when Botha returned the vehicle to the bank (see study unit 10, par 10.3).

Another problematic aspect in this regard is that of incidental credit agreements.

incidental credit In terms of the NCA (ss 5(2) and 8(4)(b)) an agreement is only deemed to be an
agreements incidental credit agreement 20 business days after the supplier of goods or services
first charged interest or fees for late payment of an account. Otto (2010 THRHR
647) is of the opinion that the nature of the agreement within the 20-day period is
uncertain, but that an agreement is certainly not a credit agreement during the 20-day
period. If one accepts that during the abovementioned 20-day period, an incidental
credit agreement does not constitute a credit agreement in terms of the NCA, the
CPA applies to such an “incidental credit agreement” during that period, when it
has not yet become a credit agreement in terms of the NCA (see also Kelly-Louw
Consumer credit regulation 557–558 and Otto NCA 144–145). Practical issues such as
disputes related to dates and times of transactions may occur in this regard. However,
the solution probably lies in section 2(9) of the CPA, which prescribes rules to be
applied in case of conflict between the CPA and other legislation such as the NCA.

• Further exemptions
certain contracts The CPA also does not apply to a transaction pertaining to services supplied under
relating to labour an employment contract (s 5(2)(e)), or giving effect to a collective bargaining
law
agreement in terms of section 23 of the Constitution of South Africa, 1996, and
the Labour Relations Act 66 of 1995 (s 5(2)( f )) and giving effect to a collective
agreement as defined in section 213 of the Labour Relations Act 66 of 1995 (s 5(2)(g)).

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 STUDY UNIT 18: General background, purpose, scope and application of the CPA

18.4.3 Specific inclusions

extended The CPA provides for specific inclusions. Firstly, where any goods are supplied
application of within the Republic to any person in terms of an exempted transaction, those
sections 60 and 61
goods and the importer, producer, distributor and retailer of those goods are
still subject to sections 60 and 61 of the CPA. These provisions, which are dealt
with in more detail below (par 23.3), relate to liability for harm caused by goods.
This means therefore that the retailer, who buys from the producer and distributor,
will be able to rely on these sections, although the CPA is not applicable to the
transaction (because most retailers will have an asset value or turnover of over R2
million) (Naudé & Eiselen Commentary 5–40).

Secondly, the CPA provides that certain arrangements must always be regarded as a
transaction in terms of the CPA (s 5(6)). These inclusions refer to goods and services
supplied by voluntary associations (s 5(6)(a)) and various transactions in connection
with franchise agreements (s 5(6)(b)–(e)).

18.4.4 Interplay between the common law, the CPA and other statutes
overlap between You already know by now that all sale and lease agreements are governed by
various statutes specific common law principles (discussed in study guides 1 and 2). However,
specific statutes modify or amend the common law principles in respect of sale and
lease contracts governed by that specific statute. The CPA is an example of such
a statute, but there are also other statutes that modify or amend the common law.

You should also notice from the above discussion, that although the CPA has a
very wide scope of application in the law of sale and lease, it does not apply to
all contracts of sale and lease. It is, therefore, important firstly to determine
whether the CPA is applicable to a given set of facts before you can apply the
provisions of the CPA.

Finally, you should remember that it is possible that the CPA may apply in
conjunction with other statutes. For example, it is possible that both the CPA
and the Rental Housing Act 50 of 1999 may apply to a specific lease. Where this is
the case and a conflict arises between the provisions of the CPA and the other Act,
section 2(9)(b) of the CPA provides that the Act that affords greater protection to
the consumer will apply. To a certain extent, the CPA and the National Credit Act
34 of 2005 will also overlap, although it looks as if our courts are reluctant to allow
such an overlap. (See again the discussion of MFC v Botha above.)

18.5 THE FUNDAMENTAL CONSUMER RIGHTS IN TERMS OF THE

CPA
fundamental The CPA recognises a number of fundamental consumer rights to give effect to
consumer rights its aims and, amongst other things, prohibits or limits certain terms in consumer
contracts. This means that if the CPA applies to a specific sale or lease transaction,
the buyer or lessee in that transaction is granted certain rights and remedies in
terms of the CPA.

The fundamental consumer rights in the CPA are comprised of the right to

(a) equality in the consumer market,

(b) privacy,

LPL4801/3 89
 (c) choice,
(d) disclosure and information,
(e) fair and responsible marketing,
(f) fair and honest dealing,
(g) fair, just and reasonable terms and conditions, and
(h) fair value, good quality and safety (Ch 2 Part A–H of the CPA).
For the purposes of this module, we deal only with the most relevant of the
abovementioned rights, and also only the most relevant aspects of these rights.
These are dealt with in study units 19 to 23.

ACTIVITY
Please reread the factual scenario at the beginning of this study unit on page 83,
and advise Victor accordingly.

18 FEEDBACK
You must identify whether the agreement between Victor and Cyclinc is a transaction
that is not excluded by the CPA. Revisit the definitions of “transaction”, “supplier”,
“consumer”, “goods” and “ordinary course of business”. You will come to the
conclusion that the CPA is most probably applicable.

90
 THE CONSUMER PROTECTION ACT 68 OF 2008

19 STUDY UNIT 19
The consumer’s right to choose

(1) Vusi buys a vacuum cleaner from Vavavacu (Pty) Ltd. He bought the vacuum
cleaner from a door-to-door salesman who came, without prior arrangement, to
his home. Vusi immediately realises, after he has paid for the vacuum cleaner,
that he should not have bought the vacuum cleaner.
(2) Jennifer has signed a gym contract with Fitness Mania for a three-year period.
After 18 months she now wants to terminate the agreement as she realises
that she does not go to the gym that often.

OVERVIEW
In this study unit you learn about important sections of the CPA that relate to the
consumer’s freedom of choice. You learn about the new provisions regarding the
expiry and renewal of fixed-term contracts, the consumer’s right to a cooling-off
period after direct marketing, the consumer’s right to cancel an advance reservation,
booking or order, the consumer’s right with respect to delivery of goods and, lastly,
the consumer’s right to return goods.

CONTENTS
19.1 EXPIRY AND RENEWAL OF “FIXED-TERM CONTRACTS” (S 14
OF THE CPA)
19.2 CONSUMER’S RIGHT TO A COOLING-OFF PERIOD AFTER
DIRECT MARKETING (S 16 OF THE CPA)
19.3 CONSUMER’S RIGHT TO CANCEL AN ADVANCE RESERVATION,
BOOKING OR ORDER (S 17 OF THE CPA)
19.4 CONSUMER’S RIGHT WITH RESPECT TO DELIVERY OF GOODS
AND THE RISK RULE IN TERMS OF THE CPA (S 19 OF THE CPA)
19.5 CONSUMER’S RIGHT TO RETURN GOODS (S 20 OF THE CPA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the contents of section 14 of the CPA relating to the expiry and renewal
of fixed-term contracts, and explain how this section amended the common law
and how it interacts with other legislation
• explain the consumer’s right to a cooling-off period in terms of section 16 of
the CPA after direct marketing, and indicate how this section has amended
the common law
• explain the consumer’s right to cancel an advanced reservation, booking or order
in terms of section 17 of the CPA, and explain its impact on the common law
• explain the consumer’s right with respect to delivery of goods in terms of section
19 of the CPA and explain its impact on the common law, with specific emphasis
on the new risk rule created by the CPA

LPL4801/3 91
 • explain the consumer’s right to return goods under certain circumstances in terms
of section 20 of the CPA, and explain its impact on the common law

19.1 EXPIRY AND RENEWAL OF “FIXED-TERM CONTRACTS” (S 14

OF THE CPA)
limitation on fi xed- Although “fixed-term agreements” are not defined in the CPA, it can be accepted
term contracts that this means agreements that will endure until a specified date. Examples in
everyday commerce would include gym contracts, cell phone contracts and leases
(Naudé & Eiselen Commentary 14–4, 14–5). This section does not apply to transactions
between juristic persons at all, regardless of their annual turnover or asset value
(s 14(1)). A fixed-term contract may not, as a general rule, be for a period longer
than 24 months from the date of signature by the consumer, unless for instance,
such longer period is expressly agreed between the consumer and the supplier, and
the supplier can show a demonstrable financial benefit to the consumer (s 14(2)(a)
and regulation 5(1) of the CPA Regulations). A supplier will meet this requirement
if he/she has given discounts to customers because the agreement is of a longer
duration (Naudé & Eiselen Commentary 14–6).

consequences of Although the CPA is silent on the consequences of breaching this particular section,
contravening this it will most probably be prohibited in terms of section 51 of the CPA (as further
section discussed in study unit 22 below) as it would “set aside or override the effect of any
provision of this Act”, giving a court the discretion of various remedies. Naudé &
Eiselen (Commentary 14–7) argue that the court would most probably reduce the
term to 24 months.

cancellation The consumer may cancel the agreement at any other time before the expiry of the
of fi xed-term agreement by giving the supplier 20 business days’ written notice (s 14(2)(b)(i)(bb)).
contracts However, the supplier may only cancel the agreement by giving 20 business days’
written notice to the consumer who has committed a material failure to comply
with the agreement, unless the consumer has rectified the failure within that time
(s14(2)(b)(ii)).

In both these instances of cancellation, the consumer remains liable to the supplier
for any amounts owed to the supplier in terms of the agreement up to the date of
cancellation together with a reasonable cancellation penalty (if the supplier has
imposed one) with respect to any goods supplied, services provided, or discounts
granted to the consumer in contemplation of the agreement enduring for its intended
fixed term (s 14(3)). The supplier must credit the consumer with any amount that
remains the property of the consumer as of the date of cancellation (s 14(3)(b)).
Regulations 5(2) and (3) of the CPA Regulations list the factors that determine the
reasonableness of the credits and charges.

renewal of fi xed- At a certain stage before the expiry of the contract (not more than 80 days, but not
term contracts less than 40 days), the supplier must notify the consumer in writing of the impending
expiry date and any material changes that would apply if the agreement is to be
renewed or may otherwise continue beyond the expiry date. The consumer must also
be informed of the options available to him/her in terms of section 14(2)(d) (s 14(2)(c)).

Section 14(2)(d) of the CPA provides that on the expiry of the fixed term of the
consumer agreement, it will be automatically continued on a month-to-month basis,
subject to any material changes of which the supplier has given notice, unless the

92
 STUDY UNIT 19: The consumer’s right to choose

consumer expressly directs the supplier to terminate the agreement on the expiry
date or agrees to a renewal of the agreement for a further fixed term. If the consumer
chooses to cancel the agreement, he/she may do so without penalty or charge (s 14(2)
(b)(i)(aa)), but remains liable for any amounts owed to the supplier in terms of the
agreement up to the date of cancellation (s 14(3)(a)). A clause authorising a supplier
to breach this section of the CPA will most probably be prohibited as a “black list”
item as discussed in study unit 22 below, with the agreement subsequently being
void (Naudé & Eiselen Commentary 14–7).

INFLUENCE ON EXISTING LAW

The common law places no limit on the duration of a fixed-term lease (see study
guide 1, study unit 2, par 2.3.3). This provision will, therefore, potentially affect
many residential leases, although Naudé & Eiselen are of the opinion that it
was not intended by the legislature that this section should apply to common
law leases, but rather to service agreements such as cell phone contracts
and so on.
Section 14 of the CPA prescribes how a fi xed-term lease agreement can be
terminated by the consumer or the supplier, and provides for the automatic
renewal of a fixed-term lease agreement. In this respect, these provisions have
amended the common law position as discussed in Study Guide 1, study unit
18, paragraph 18.2.
It is possible that both the CPA and the Rental Housing Act (the “RHA”)
can apply to the same transaction, and a potential conflict can arise between
section 5(5) of the RHA (discussed in study guide 1, study unit 19, par 19.4.2.5)
and section 14 of the CPA. Although both sections provide for the automatic
renewal of a fi xed-term lease agreement to a periodic lease on a month-to-
month basis, the CPA provides the lessor with an opportunity to amend the
terms of the agreement by giving appropriate notice to the lessee (which could
include an increase in the rental). However, Bradfield & Lehmann (Sale and
lease 198–199) argue that the variation provisions in section 14(2)(c) of the
CPA would be subject to the unfair practice provisions in the RHA. This is
because such an interpretation would afford greater protection to the consumer
(i.e. the lessee) as required by section 2(9)(b) of the CPA. For example, in
Maphango v Aengus Lifestyle Properties (Pty) Ltd 2012 3 SA 531 (CC) the
Constitutional Court decided that the termination of a month-to-month lease
agreement (with the requisite notice given), for the sole purpose to increase
the rent, could constitute an unfair practice. The reference to an unfair practice
is in accordance with the RHA. In this case, the court reasoned that this was
capable of transpiring where, although the termination of a lease agreement
is permitted by the common law, the escalation sought is inconsistent with
the escalation clause relating to the existing agreement, or is in excess of
what is considered reasonable. Also refer to Study Guide 1, study unit 19,
paragraph 19.3.

19.2 CONSUMER’S RIGHT TO A COOLING-OFF PERIOD AFTER

DIRECT MARKETING (S 16 OF THE CPA)
consumer’s Section 16 of the CPA provides the consumer with a right to a cooling-off period
cooling-off after direct marketing. It is important to remember that this cooling-off right is not
right after direct available to all consumer sale contracts, but only those resulting from direct
marketing
marketing (Glover Sale and lease 270). Glover (Sale and lease 270) also mentions that
it is important to keep in mind that section 16 of the CPA does not apply to sale

LPL4801/3 93
 transactions concluded electronically, as section 40 of Electronic Communications
and Transactions Act 25 of 2002 (the “ECTA”) will apply. Therefore, all “online”
shopping will be excluded from the protection offered by this section.

direct marketing “Direct marketing” means to approach a person, either in person or by mail or
explained electronic communication (which includes telephone, fax, SMS, wireless computer
access and email) for the direct or indirect purpose of promoting or offering to
supply, in the ordinary course of business, any goods or services to the person; or
requesting the person to make a donation of any kind for any reason (s 1 of the CPA).

close enough link? Naudé & Eiselen (Commentary 16–6) raise an important question, namely, how closely
the conclusion of the contract must be connected to the direct marketing. They
conclude that a flexible approach (as applied by our courts in the determination
of legal causation in the law of delict and criminal law) founded in common sense
should be utilised.
EXAMPLE
Take the example that when you receive junk mail at home advertising a product,
and then you go all the way to the store, read the label and then buy the product,
policy considerations will dictate that there is not a close enough link between the
direct marketing and the conclusion of the contract, which means that you probably
will not be able to rely on the protection offered by this section.

procedure and Section 16(3) of the CPA provides that a consumer may rescind a transaction resulting
requirements in from any direct marketing without reason or penalty, by written notice to the supplier
terms of section 16
within five business days after the later of the dates on which the transaction or
agreement was concluded, or the goods were delivered to the consumer.
A supplier must, in terms of section 16(4) of the CPA, return any payment received
from the consumer within 15 business days after receiving notice of the rescission (if
no goods were delivered to the consumer in terms of the transaction), or receiving
from the consumer any goods supplied in terms of the transaction; and must not
attempt to collect any payment in terms of a rescinded transaction (except as permitted
in terms of s 20(6)).

return at Section 20(4)(a) of the CPA provides that goods returned to the supplier in terms
consumer’s risk of section 16 of the CPA must be returned at the consumer’s risk and expense.
and expense
Section 32 of the CPA obliges any person who engages in direct marketing and
concludes an agreement with a consumer to inform the consumer of the right to
rescind that agreement in terms of section 16 of the CPA.

INFLUENCE ON EXISTING LAW

There is no common law equivalent to the cooling-off right in the CPA. The common
law determines that once a sale or lease agreement is concluded, the parties
are bound by the agreement (unless there is a legal ground for rescission,
for instance a material misrepresentation). However, similar cooling-off rights
have been created by other statutes, for example, the right to terminate certain
credit agreements in terms of the NCA (see study unit 14, par 14.1 above) and
the cooling-off right of certain purchasers of certain low cost housing in terms
of the Alienation of Land Act 68 of 1981 (see study unit 1 par 1.2.10 above).

94
 STUDY UNIT 19: The consumer’s right to choose

19.3 CONSUMER’S RIGHT TO CANCEL AN ADVANCE

RESERVATION, BOOKING OR ORDER (S 17 OF THE CPA)
cancellation of Section 17(2) of the CPA provides the consumer with the right to cancel an advance
booking or order order for goods. However, the supplier is entitled to require the payment of a
reasonable deposit and may impose a reasonable charge for the cancellation of the
order (s 17(3)). The factors that should be taken into account to determine whether
the charge is reasonable are listed in section 17(4) of the CPA, namely, the nature of
the goods ordered, the length of notice of cancellation provided by the customer,
whether the seller might be able to find another buyer for the product and any trade
practice in the relevant industry. Section 17(5) of the CPA states that a supplier may
not charge any cancellation fee where the consumer is unable to honour the order
because of the death or hospitalisation of the person for whom or for whose benefit
the order was made. Section 17 of the CPA does not apply to a franchise agreement
or an advance order for special-order goods (ss 17(1)).

INFLUENCE ON EXISTING LAW

As mentioned above, once a sale or lease agreement is concluded the parties
are bound by the agreement in terms of the common law (unless there is some
other ground for rescission). This provision grants a consumer an additional
right to cancel an agreement under the specific circumstances and subject to
the specific requirements mentioned, albeit with a cancellation fee.

19.4 CONSUMER’S RIGHT WITH RESPECT TO DELIVERY OF

GOODS AND THE RISK RULE IN TERMS OF THE CPA (S 19 OF
THE CPA)
section dealing This section deals with the supplier’s duty to deliver the goods at the agreed time
with delivery of the and place, the right of the consumer to examine the goods when delivery takes
goods place, the consumer’s rights if the supplier delivers a larger quantity of goods than
the consumer agreed to buy, and the consumer’s rights when the supplier delivers
some of the goods the supplier agreed to supply, mixed with goods of a different
description. We encourage you to read the whole section 19 of the CPA for valuable
background.

Section 19(2)(a) of the CPA provides that the supplier is responsible to deliver the
goods or to perform the services on the agreed date and at the agreed time, if any,
or otherwise within a reasonable time after concluding the agreement, at the agreed
place of delivery, at the supplier’s cost (in the absence of an express or tacit agreement
to the contrary).

new statutory risk Section 19(2)(c) provides that the goods to be delivered remain the supplier’s
rule risk until the consumer has accepted delivery of the goods, unless otherwise
expressly provided.

presumption of Section 19(4) of the CPA determines that the consumer is presumed to have accepted
acceptance of delivery of any goods when
delivery
• the consumer communicates such acceptance to the supplier (expressly or
implicitly), or
• the goods have been delivered to the consumer and the consumer does anything
in relation to the goods that would be inconsistent with the supplier’s ownership
of the goods or, after the lapse of a reasonable time, the consumer retains the

LPL4801/3 95
 goods without intimating to the supplier that he/she (the consumer) has rejected
delivery of them.
interpretation of The interpretation of section 19(2)(c) of the CPA is in many instances problematic.
section 19(2)(c) Glover (Sale and lease 314) points out that the wording of section 19 implies that the
risk rule in terms of the CPA can be amended expressly by the parties. This would
make it far too easy for suppliers to amend the risk rule in terms of their standard
form contracts. To curb this situation, regulation 44(3)(g) was introduced, which
is discussed below in study unit 22 (par 22.1), stating that a term “modifying the
normal rules regarding the distribution of risk to the detriment of the consumer” will
be presumed to be unfair. Glover (Sale and lease 315) argues that this was a “clumsy”
way of resolving the potential problem of section 19(2)(c) of the CPA and suggests
that it would be better to effect a statutory amendment to make it (the new risk rule)
a compulsory provision standard that cannot be varied by the parties involved.

Glover (Sale and lease 315–316) goes further, saying that the CPA has also not explicitly
stated that the rule applies to both risk and benefit, which creates legal uncertainty.
However, it is generally accepted, also by international law, that risk and benefit
should go together.

Naudé & Eiselen (Commentary 19–7) raise an interesting argument that section 19(2)
(c) could also be unfair to suppliers where the consumer deliberately fails to accept
delivery of the goods, and the risk will potentially never pass to the purchaser.

INFLUENCE ON EXISTING LAW

Generally, section 19 of the CPA codifi es the seller’s common law duty to
deliver the goods (see Study Guide 2, study unit 5) and provides for further
rights and obligations. However, it is important to note that section 19(2)(c)
changes the common law rule regarding the passing of risk in a contract of sale.
Please compare the provision above with the common law principle of passing of
risk discussed in Study Guide 2, study unit 9, where risk normally passes once
the sale becomes perfecta. It is, therefore, a major impact on the common law
of sale. Glover (Sale and lease 317) is of the opinion that the courts will have
to reconsider the common law rule with regard to risk altogether. He contends
(322) that the common law risk rule should be brought in line with the CPA and
other modern jurisdictions such as Germany and the United States, to the effect
that risk should pass upon transfer of possession of the goods sold.

19.5 CONSUMER’S RIGHT TO RETURN GOODS (S 20 OF THE CPA)

consumer’s right to Apart from the right to return unsafe or defective goods (see s 56 of the CPA
return goods discussed in study unit 23 par 23.2 below) or any other right between a supplier and
consumer to return goods and receive a refund, section 20 of the CPA provides that
the consumer may return goods to the supplier, and receive a full refund of any
consideration paid for those goods, if the supplier has delivered

• goods to the consumer in terms of an agreement arising out of direct marketing,

and the consumer has rescinded that agreement during the cooling-off period,
in accordance with section 16 of the CPA,
• goods that the consumer did not have an opportunity to examine before delivery,
and the consumer has rejected delivery of those goods for any of the reasons
given in section 19(5) of the CPA,

96
 STUDY UNIT 19: The consumer’s right to choose

• a mixture of goods, and the consumer has refused delivery of any of those goods,
as covered in section 19(8) of the CPA, or
• goods intended to satisfy a particular purpose communicated to the supplier as
specified in section 55(3) of the CPA, and within 10 business days after delivery
to the consumer, the goods have been found to be unsuitable for that particular
purpose. There are, however, circumstances in which goods cannot be returned
(e.g. for reasons of public health or where the goods have been altered, changed,
affixed or combined with other goods).
risk of returning These goods must be returned to the supplier within 10 business days after delivery
the goods to the consumer (s 20(4)). Where the consumer returns goods after rescission of
the agreement arising out of direct marketing, the goods must be returned at the
consumer’s risk and expense (s 20(4)(a)). In all other cases the goods must be
returned at the supplier’s risk and expense (s 20(4)(b)).

Although the supplier must refund the consumer with the price paid for the goods,
he/she may charge the consumer for certain costs (ss 20(5)). Such charges may
include a reasonable amount for the use, consumption or depletion of the goods by
the consumer and necessary restoration costs (see s 20(6) for more details). However,
the supplier may not charge anything if unused goods are returned in their original
packaging.

INFLUENCE ON EXISTING LAW

These provisions have amended the buyer’s common law duty to take delivery
of the goods (see Study Guide 2, study unit 8, par 8.3) in that they provide
the consumer with the right to return the goods under certain circumstances.
These are additional rights granted to the consumer in terms of the CPA.

ACTIVITY
Please reread the factual scenarios at the beginning of this study unit on page 91.
Then advise Vusi and Jennifer, respectively. YOU CAN ASSUME FOR PURPOSES
OF THIS ACTIVITY THAT THE CPA DOES APPLY IN THESE TWO FACTUAL
SCENARIOS.

19 FEEDBACK
(1) Refer to paragraph 19.2. This is an example of a transaction resulting from
direct marketing and the consumer can avail herself/himself of the cooling-
off right in terms of section 16 of the CPA. Also refer also to paragraph 19.5
regarding the consumer’s general right to return goods.
(2) Refer to paragraph 19.1. The contract should not be concluded for longer
than 24 months unless there was demonstrable benefit to the consumer
and the consumer has expressly agreed to such a longer term. So, when a
period of 24 months lapses, she will probably be able to escape liability. In
terms of section 14 of the CPA, she could also proceed to cancel the gym
contract by immediately giving 20 business days’ notice to the supplier,
and incurring certain monetary consequences (including having to pay a
reasonable cancellation penalty).

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 THE CONSUMER PROTECTION ACT 68 OF 2008

20 STUDY UNIT 20
The consumer’s right to disclosure and
information
Jenny goes to Grocery-Inn for her monthly grocery shopping. On the shelf, she
sees that a special price is displayed for the Nespresso coffee machines, being R495.
She takes one as she obviously regards it as a very good price. At the till the cashier
informs her that the price is actually R4 950, and apologises for the store’s mistake
in omitting the extra 0. Jenny insists on paying the special price instead.

OVERVIEW
In this study unit you learn about the consumer’s right to disclosure and information.
Firstly, we look at section 22 of the CPA, which deals with the very important
provision that a consumer is entitled to information in plain and understandable
language. This aspect has far-reaching implications for all sale and lease agreements
that are subject to the CPA. Secondly, we look at section 23 of the CPA relating to
the disclosure of the price of goods or services.

CONTENTS
20.1 CONSUMER’S RIGHT TO INFORMATION IN PLAIN AND
UNDERSTANDABLE LANGUAGE (S 22 OF THE CPA)
20.2 DISCLOSURE OF THE PRICE OF GOODS OR SERVICES (S 23 OF
THE CPA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the contents of section 22 of the CPA relating to the consumer’s right to
information in plain and understandable language, and explain how this section
amended the common law and how it interacts with other legislation
• explain section 23 of the CPA relating to the supplier’s duty to disclose the
correct price of goods or services, and to indicate how this section has amended
the common law

20.1 THE CONSUMER’S RIGHT TO INFORMATION IN PLAIN AND

UNDERSTANDABLE LANGUAGE (S 22 OF THE CPA)
plain and Section 22(1) of the CPA provides that any notice, document or visual representation
understandable made or displayed to a consumer in terms of the CPA or any other law, must be in
language the prescribed form in terms of the CPA or other legislation, or in plain language
where no form has been prescribed.

test for plain Section 22(2) of the CPA provides for a test for plain language: Whether an ordinary
language consumer from the class of persons for whom the document is intended, with average

98
 STUDY UNIT 20: The consumer’s right to disclosure and information

literacy skills and minimal experience as a consumer of those goods or services, could
be expected to understand the content, significance and import of the document
without undue effort. A number of factors should be taken into account, namely,

• the context, comprehensiveness and consistency of the document,

• the organisation, form and style of the document,
• the vocabulary, usage and sentence structure of the document, and
• the use of any illustrations, examples, headings or other aids to reading and
understanding.

INFLUENCE ON EXISTING LAW

This right is similar to the right to plain language found in section 64 of the
NCA (see study unit 5, par 5.4 above).

20.2 DISCLOSURE OF THE PRICE OF GOODS OR SERVICES (S 23

OF THE CPA)
Generally a supplier may not display goods for sale without displaying a price in
respect of those goods (s 23(3)). There are a few exceptions to this rule, for example,
where a supplier has provided an estimate or the consumer has waived such an
estimate in terms of section 15 of the CPA or where the goods are displayed by the
retailer predominantly as a form of advertisement for the supplier.

price in rands There are detailed provisions relating to the circumstances where a price is adequately
displayed (s 23(5)), but for purposes of our discussion it is important to remember that
the price must be expressed in the currency of the Republic and should, therefore,
refer to a monetary value. The price of the specific article should be clear to the
consumer.

two different Section 23(6) of the CPA provides that a supplier may not require a consumer to pay
prices: lowest price a price higher than the displayed price or, where two different prices are displayed,
more than the lower price displayed (e.g. where the price on the price ticket on the
item differs from the price on the shelf). This would be the case irrespective of
whether or not the supplier is obliged to display a price.

exceptions to this There are a few exceptions to this rule, namely, if the price is determined by public
rule regulation, if the price is covered completely by a second displayed price, if the
displayed price contains an inadvertent and obvious error (provided the error has
been corrected and reasonable steps were taken to inform consumers) and,
lastly, if the displayed price was altered, covered or removed by an unauthorised
person (s 23(7)–(10)).

the controversy The above provisions have created legal uncertainty as to when a contract between
around s 23 the supplier and the consumer is deemed to be concluded. Please reread the scenario
on page 98 at the beginning of this study unit. In terms of section 23(6) of the CPA,
the store will be obliged to sell the Nespresso machine to Jenny at the lower price.
However, the store could argue that it was an obvious error and that they have
informed Jenny of this as soon as they became aware of this error. Is it may be too
late to rectify the mistake at the time when Jenny places the machine on the counter?
Some academic writers argue that the display of the merchandise at a specific price,
constitutes an offer to sell (Du Plessis 2015 SALJ 150 154–160, 164–168). Melville &
Wolker (2014 Obiter 644 657) conclude that a transaction is perfecta once a consumer

LPL4801/3 99
 reaches or places the goods on the check-out counter and that the price is then
binding despite any inadvertent or obvious error in the price and that the display of
goods in a self-service setting equates to a binding offer on the part of the seller at
the displayed price.

INFLUENCE ON EXISTING LAW

These provisions impose additional obligations on sellers to display a price for
goods displayed for sale (except in certain circumstances). The question arises
of whether this provision would preclude a contract of sale for a reasonable
price, in which no price is stipulated, but where the price is determined by a
third party or one of the contracting parties (see Study Guide 2, study unit 2,
par 2.3.). Only time will tell how the courts will interpret this provision.

ACTIVITY
Please reread the factual scenarios at the beginning of this study unit on page
98. Then advise Jenny with regard to her legal position against the grocery store.
YOU CAN ASSUME FOR PURPOSES OF THIS ACTVITY THAT THE CPA DOES
APPLY TO THIS FACTUAL SCENARIO.

20 FEEDBACK
Refer to paragraph 20.2. In terms of section 23(6) of the CPA, the consumer
may not be asked to pay a higher price than the one displayed, unless one of the
exceptions applies. In this scenario, Jenny was only told at the counter that the
displayed price was incorrect. Is this too late? Is the store bound by the displayed
price? It seems like many writers, as well as the Consumer Ombud, are of the
opinion that the store will be bound by the lower price.

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21 STUDY UNIT 21
The consumer’s right to fair and honest
dealing

Sally buys a new skin product from Forever Young. She is informed by the sales
representative that it contains a new improved anti-aging ingredient, which is known
to be very expensive. Sally buys the product, but when she gets home and reads the
label, there is no mention of the special ingredient.

OVERVIEW
In this study unit you learn about the consumer’s right to fair and honest dealing.
You are introduced to section 40 of the CPA, which deals with unconscionable
conduct, and section 41 of the CPA, which deals with false, misleading or deceptive
representations and the effect if the supplier transgresses these two sections. You will
also note that these sections largely coincide with the common law principles and
remedies offered for duress, undue influence, material mistake, misrepresentation
and dictum et promissum, but that the CPA goes even further than the common law
in protecting the consumer.

CONTENTS
21.1 UNCONSCIONABLE CONDUCT (S 40 OF THE CPA)
21.2 FALSE, MISLEADING OR DECEPTIVE REPRESENTATIONS (S 41
OF THE CPA)
21.3 CONSUMER’S RIGHT TO ASSUME THAT THE SUPPLIER IS
ENTITLED TO SELL THE GOODS (S 44 OF THE CPA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the contents of section 40 of the CPA relating to certain forms of

unconscionable conduct, and explain how this section codified and amended
the common law and also understand the court’s powers in cases of such
unconscionable conduct
• explain section 41 of the CPA regarding false, misleading or deceptive
representations, and understand that it codifies and extends the common law
principles relating to these representations and to explain what the court’s powers
are when such representations occur

21.1 UNCONSCIONABLE CONDUCT (S 40 OF THE CPA)

unconscionable Section 40(1) of the CPA provides that a supplier (or an agent of the supplier) may not
conduct use physical force, coercion, undue influence, pressure, duress or harassment,
unfair tactics or any other similar conduct towards a consumer in connection

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 with any marketing, or supply of any goods or services, or during the negotiation of
the agreement for the supply, or in the enforcement of the agreement.

Some of these forms of unconscionable conduct do not have a technical meaning

in South African law and deserve a short discussion. Naudé & Eiselen (Commentary
40-3–40-9) are of the opinion that the term “coercion” overlaps with duress and
becomes superfluous. “Unfair tactics” also seems to be absorbed by all the other forms
of unfair conduct, as does “pressure”. They aver that any form of sales technique
includes some form of pressure, and that the conduct should amount to something
more, such as duress or force, before it can be deemed to be unfair. “Harassment”
possibly refers to the invasion of a consumer’s personal space or privacy. It therefore
seems that many of these terms are superfluous and create uncertainty.

Section 40(2) of the CPA provides that, in addition to the above, it is also
unconscionable for a supplier knowingly to take advantage of the fact that a
consumer was substantially unable to protect his/her own interests because of
physical or mental disability, illiteracy, ignorance, inability to understand the language
of an agreement or any other similar factor.

remedies Please refer to the discussion of section 52(1)–(3) of the CPA in paragraph 21.2
below (under the discussion of remedies), for the consequences if a supplier is guilty
statutory remedies
of unconscionable conduct.

common law Relating to unconscionable conduct, Naudé & Eiselen (Commentary 40–15) correctly
remedies state that the consumer will obviously also be able to rely on the common law
remedies, for example, to apply for an interdict.

INFLUENCE ON EXISTING LAW

Section 40 of the CPA not only largely coincides with what under the common law
would qualify as duress and undue influence but also goes further by prohibiting
the supplier from taking advantage of entirely subjective factors relating to
the consumer. Potentially the supplier will have to take reasonable steps
to ascertain whether the consumer is fully aware of the implications of
the transaction. Therefore, the supplier must also protect the interests of the
consumer within a reasonable limit, whereas the common law mostly requires
each party to look after his/her own interests within the ambit of contractual
freedom.

21.2 FALSE, MISLEADING OR DECEPTIVE REPRESENTATIONS

(S 41 OF THE CPA)
false, misleading Section 41(1) of the CPA provides that, in relation to the marketing of any goods or
or deceptive services, the supplier must not, by words or conduct
representations

• directly or indirectly express or imply a false, misleading or deceptive representation

concerning a material fact to a consumer,
• use exaggeration, innuendo or ambiguity as to a material fact, or fail to disclose
a material fact if that failure amounts to a deception,
• fail to correct an apparent misapprehension on the part of a consumer, amounting
to a false, misleading or deceptive representation, or
• permit or require any other person to do the above three mentioned actions on
behalf of the supplier.

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Naudé & Eiselen (Commentary 41–4–41–9) explain the above-mentioned categories.

The first category could also include an opinion of a material fact. The second should
be distinguished from mere puffery, which is sales talk that cannot be taken seriously.
The third category will be determined by asking whether there was a relationship
of trust between the parties involved, depending on the expertise of the parties, the
nature of the information and so on.

Section 41(2) of the CPA provides that a person acting on behalf of a supplier of
any goods or services must not falsely represent that the person has any sponsorship,
approval or affiliation, or engage in any conduct that the supplier is prohibited from
engaging in under section 41(1) of the CPA.

CPA examples of Without limiting the generality of the provisions regulating misrepresentations, the
false, misleading CPA gives specific examples of false, misleading or deceptive misrepresentations.
or deceptive
misrepresentations
Section 41(3) of the CPA provides that it is a false, misleading or deceptive representation
to falsely state or imply, or fail to correct an apparent misapprehension on the part
of a consumer of a number of things, to the effect that

• the supplier of any goods or services has any particular status, affi liation,
connection, sponsorship or approval that they do not have,
• any goods or services
(i) have ingredients, performance characteristics, accessories, uses, benefits,
qualities, sponsorship or approval that they do not have,
(ii) are of a particular standard, quality, grade, style or model when they are
not,
(iii) are new or unused, if they are not or if they are reconditioned or reclaimed,
subject to subsection (4) (as explained below),
(iv) have been used for a period to an extent or in a manner that is materially
different from the facts,
(v) have been supplied in accordance with a previous representation, or
(vi) are available or can be delivered or performed within a specified time, when
they are not or cannot,
• any land or other immovable property
(i) has characteristics that it does not have,
(ii) may lawfully be used, or is capable of being used, for a purpose that is in
fact unlawful or impracticable, or
(iii) has or is proximate to any facilities, amenities or natural features that it
does not have, or that are not available or proximate to it,
• the necessary service, maintenance or repair facilities or parts are readily available
for or within a reasonable period, where it is not the case,
• any service, part, replacement, maintenance or repair is needed or advisable,
where it is not the case,
• a specific price advantage exists, where it is not the case,
• a charge or proposed charge is for a specific purpose, where it is not the case,
• an employee, salesperson, representative or agent has the necessary authority to
negotiate the terms of, or conclude, an agreement, where it is not the case,
• the transaction affects, or does not affect, any rights, remedies or obligations of
a consumer, where it is not the case,
• a particular solicitation of, or communication with, the consumer is for a particular
purpose, where it is not the case, or
• the consumer will derive a particular benefit if they assist the supplier in obtaining
a new or potential customer, where it is not the case.

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demonstration Section 41(4) of the CPA provides that a representation covered in section 41 (3) of
models the CPA to the effect that any goods are new, is not false, misleading or deceptive if
those goods have been used only by or on behalf of the producer, importer, distributor
or retailer and for the purposes of reasonable testing, service, preparation or delivery.

Section 48(2)(c) of the CPA provides that a term is unfair, unreasonable or unjust if
the consumer relied upon a false, misleading or deceptive representation included
in section 41 of the CPA, or a statement of opinion provided by or on behalf of the
supplier, to the detriment of the consumer. Refer to study unit 22 paragraph 22.1
p110 for the discussion of unreasonable terms.

remedies Section 52(1) of the CPA provides that, if the court is dealing with a matter in terms
of section 40, 41 or 48 of the CPA (the last-mentioned section is discussed in study
unit 22 below) and the CPA does not provide for a remedy sufficient to correct the
prohibited conduct, the court must consider the factors set out in section 52(2) of
the CPA (as discussed in par 22.1 below). Thereafter, the court may make an order
contemplated in section 52(3) of the CPA. Section 52(3) of the CPA provides that
the court may declare the agreement (in whole or in part) to constitute a prohibited
conduct and make any further order the court considers just and reasonable, taking
into account the circumstances of each case. This may include an order to restore
money to the consumer, to compensate the consumer for losses or expenses related
to the transaction or the court proceedings, or requiring the supplier to cease or alter
any practice or document to avoid a repetition of the supplier’s conduct.

INFLUENCE ON EXISTING LAW

Section 41 of the CPA generally relates to what under the common law would
qualify as culpable misrepresentation (negligent or intentional), innocent
misrepresentation, and a dictum et promissum (see Study Guide 2, study unit
6, par 6.3 and 6.4). It is important to note that a misrepresentation can be
either positive (e.g. a statement) or negative (failure to remove an incorrect
impression). In terms of the common law, a negative misrepresentation
or non-disclosure will only give rise to a remedy where there was a legal
duty to speak in the circumstances. Section 41 of the CPA, however,
is phrased in such a way that conceivably it may go even further and
encompass situations that would not normally provide a legal remedy in
terms of the common law. For example, the supplier may not indulge in
the use of “exaggeration, innuendo or ambiguity as to a material fact”
that might, in terms of the common law, be permissible as being mere puffery.
Furthermore, section 41 of the CPA does not indicate that the supplier must
have acted with fault (Naudé & Eiselen Commentary 41–6). It would, therefore,
be easier for a claimant to prove his/her claim based on a misrepresentation
in terms of the CPA than in terms of the common law, where fault (albeit
negligence) is still a requirement. Although fault is not, in terms of the common
law, a requirement for the successful reliance on a dictum et promissum,
the aedilitian remedies offer limited protection. Future court decisions will
show how broadly the courts are prepared to interpret section 41 of the CPA.

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21.3 THE CONSUMER’S RIGHT TO ASSUME THAT THE SUPPLIER

IS ENTITLED TO SELL THE GOODS (S 44 OF THE CPA)
eviction in terms of Section 44 of the CPA provides that every consumer has a right to assume, and it is
the CPA an implied provision in every transaction that the supplier of goods

• has the legal right, or the authority from the legal owner, to sell or lease the goods
at the time that the title of the goods is to pass to the consumer (in the case of
a sale) or at the time the consumer is to take possession of the leased property
(s 44(1)(a)–(b)),
• is fully liable to the consumer for any charge or encumbrance pertaining to the
goods in favour of any third party, unless such charge or encumbrance is disclosed
in writing to the consumer prior to the conclusion of the agreement, or unless the
supplier and the consumer have colluded to defraud the third party (s 44(1)(c)), and
• guarantees that the consumer is to have and enjoy “quiet possession” of the goods,
subject to any charge or encumbrance disclosed in terms of section 44(1)(c).
remedies These provisions have been criticised because they are silent on what remedy the
consumer may rely on, if the required legal right or authority on the part of the
supplier does not exist or does not come into existence (Sharrock Business transactions
law 406). Bradfield & Lehmann (Sale and lease 94) argue that the normal remedies for
breach of contract would be available to the consumer in such an instance. Naudé
& Eiselen (Commentary 44–12) entertain the same thought, stating that the common
law remedies for eviction should be invoked.
warranty against Finally, Barnard has argued that these statutory provisions or the common law
eviction cannot warranty against eviction cannot be excluded by agreement (Barnard CPA and sale 341).
be excluded inter
partes This is based on the argument that excluding these provisions or the warranty against
eviction would be prohibited by section 51(1)(a)–(b) or would be considered unfair
in terms of section 48 of the CPA. (These provisions are discussed in more detail in
par 22.1 and 22.4.) This is similar to the position in respect of credit sale agreements
governed by the NCA, where such terms are also prohibited.

INFLUENCE ON EXISTING LAW

These provisions have resulted in some important changes to the common law
position relating to the warranty against eviction regarding sale agreements
(see Study Guide 2, study unit 7). Naudé & Eiselen (Commentary 44–8)
highlight a few important changes: Actual eviction, being the actual disturbance
in possession by a third party, is not required for section 44(1)(a)–(b) to
be contravened. It has also been argued that, because these provisions
are statutorily implied, it is not necessary for the consumer to comply with
the common law requirements for liability for eviction when relying on these
provisions (see Study Guide 2, study unit 7, par 7.3.2; and Barnard CPA and
sale 339). It can be argued that section 44 of the CPA is not applicable to
lease agreements, as this section is only applicable to the supply of goods,
and not services.

ACTIVITY
Please reread the factual scenario at the beginning of this study unit on page 101,
and advise Sally with regard to her legal position regarding the supplier of the
facial cream. YOU CAN ASSUME FOR PURPOSES OF THIS ACTIVITY THAT
THE CPA APPLIES IN THIS FACTUAL SCENARIO.

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 21 FEEDBACK
Refer to paragraph 21.2. It is clearly a directly misleading representation of a
material fact to a consumer in terms of section 41(1) of the CPA. However, you
should understand that, apart from the remedies in terms of the CPA, Sally also has
the common law remedies in terms of misrepresentation and dictum et promissum.
However, by availing herself to the CPA, she will not have to prove fault as one of
the elements of a misrepresentation, and her remedies might be more extensive
than in terms of a common law dictum et promissum. Remember to discuss her
possible remedies in terms of section 52(1) and (3) of the CPA.

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 THE CONSUMER PROTECTION ACT 68 OF 2008

22 STUDY UNIT 22
The consumer’s right to fair, just and
reasonable terms and conditions, and the
court’s powers to enforce these rights
(1) Richard concludes an agreement to buy a car from Vavavoom (Pty) Ltd on
12 August. The arrangement is made that Richard will collect the car from
Vavavoom (Pty) Ltd on 13 August. However, the car is destroyed on the even-
ing of 12 August in a hail storm. Richard is informed that, because there was
a clause in the contract that risk passes when the contract becomes perfecta,
the destruction of the car is Richard’s loss.
(2) Christopher bought a second hand Vespa scooter from Italbike (Pty) Ltd.
Two days after he received delivery of the scooter, the engine explodes. A
motor engineer examines the Vespa and is of the opinion that the explosion
occurred due to a fault in the engine that existed before Christopher bought
the scooter. However, Italbike relies on the voetstoots clause that is included in
the contract, which excludes liability for latent defects.
(3) Thabo fills his car at Mobilia Petrol. At the petrol station, there is a sign stating
the following: “Mobilia Petrol will not be held liable for any loss to your vehicle
due to the negligence of our staff.” Thabo asks specifically for diesel as he
parks next to one of the pumps. After his tank is filled, he pays and drives
off. However, his car breaks down a few blocks away. The mechanic informs
Thabo that the engine needs to be replaced as his tank was filled with petrol
instead of diesel, damaging the engine severely.

OVERVIEW
In this study unit you learn about the general prohibition in the CPA against unfair
terms and unfair pricing, and what the test is to determine whether a term is an unfair
term. It also sets out that, before certain terms may be included in the agreement, the
customer’s attention should be drawn to these provisions in a satisfactory manner.
Lastly, we explain that, in terms of the CPA, certain provisions are totally prohibited
and may not be included in an agreement at all. This is an extremely important study
unit.

CONTENTS
22.1 UNFAIR, UNREASONABLE OR UNJUST CONTRACT TERMS (S 48,
READ TOGETHER WITH SECTION 52 OF THE CPA)
22.2 NOTICE REQUIRED FOR CERTAIN TERMS AND CONDITIONS
(S 49 OF THE CPA)
22.3 WRITTEN CONSUMER AGREEMENTS (S 50 OF THE CPA)
22.4 PROHIBITED TRANSACTIONS, AGREEMENTS, TERMS AND
CONDITIONS (S 51 OF THE CPA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:
• explain section 48 of the CPA regarding the general prohibition against unfair
terms and unfair prices, and explain the CPA test for an unfair term, and also

LPL4801/3 107
 explain and discuss the list of presumed unfair terms. You should also be able
to explain the remedies available when an unfair term has been included in an
agreement
• explain section 49 of the CPA, which requires that certain terms should be
drawn to the attention of the consumer, and explain the remedies available
to the consumer should these terms be included in the agreement without the
consumer’s knowledge
• explain section 50 of the CPA, which sets out the requirements for when an
agreement should be reduced to writing, and general arrangements regarding
the format of the agreement
• explain section 51 of the CPA, which contains a list of prohibited contractual
terms and also the effect of including such a term in an agreement

22.1 UNFAIR, UNREASONABLE OR UNJUST CONTRACT TERMS

(S 48, READ TOGETHER WITH S 52 OF THE CPA).

UNFAIR TERMS

General prohibition against unfair terms

general prohibition Section 48(1)(a)(ii) of the CPA provides that a supplier may not offer to supply, supply
against unfair or enter into an agreement to supply any goods or services, on terms that are unfair,
terms
unreasonable or unjust. Furthermore, section 48(1)(c) of the CPA provides that a
supplier may not require a consumer to waive any rights, assume any obligation or
waive any liability of the supplier on terms that are unfair, unreasonable or unjust,
nor may the supplier impose any such terms as a condition for entering into the
transaction.

Presumed unfair terms (“grey list” terms)

onus of proof on The CPA itself does not contain any provision dealing with the onus of proof when
the consumer a consumer alleges that a term is unfair, therefore, the onus rests on the consumer
to prove that the term is unfair. However, there are some exceptions, because
certain terms are presumed to be unfair (referred to as “grey list” terms). These
terms are contained in regulation 44(3) of the CPA Regulations, but regulation 44(1)
of the CPA Regulations provides that this list only applies to a term in a consumer
contract between a supplier operating on a for-profit basis and acting wholly or
mainly for purposes related to his or her business or profession, and an individual
consumer or individual consumers who entered into it for purposes wholly or mainly
unrelated to his or her business or profession.

It is important to remember that a term listed may be fair in view of the particular
circumstances of the case (regulation 44(2)(a)) and that the list is non-exhaustive
(regulation 44(2)(b)). In other words, although a term is not listed in the regulations,
it could still be unfair in terms of section 48 of the CPA, and the terms that are listed
could be proven by the supplier to be fair (see discussion below). The most important
grey list terms for purposes of this module are copied below:

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 STUDY UNIT 22: The consumer’s right to fair, just and reasonable terms and conditions

list of presumed A term is presumed to be unfair if it has the purpose or effect of

unfair terms

• it excludes or limits the supplier’s liability for death or injury caused to a consumer
by defective, unsafe or hazardous goods (regulation 44(3)(a) of the CPA Regulations,
• excluding or restricting legal rights or remedies of the consumer against
the supplier or another party in the event of total or partial breach by the
supplier of any of the obligations provided for in the agreement, including the
right of the consumer to set off a debt owed to the supplier against any claim
that the consumer may have against the supplier (regulation 44(3)(b) of the CPA
Regulations),
• modifying the normal rules regarding the distribution of risk to the
detriment of the consumer (regulation 44(3)(g) of the CPA Regulations),
• allowing the supplier to increase the price agreed with the consumer when the
agreement was concluded, without giving the consumer the right to terminate
the agreement (regulation 44(3)(h) of the CPA Regulations),
• enabling the supplier to unilaterally alter the terms of the agreement including
the characteristics of the product or service (regulation 44(3)(i) of the CPA
Regulations),
• giving the supplier the right to determine whether the goods or services supplied
are in conformity with the agreement or giving the supplier the exclusive right to
interpret any term of the agreement (regulation 44(3)( j) of the CPA Regulations),
• forces the consumer to pay even if the supplier has not performed (regulation
44(3)(m) of the CPA Regulations,
• permitting the supplier, but not the consumer, to avoid or limit performance of
the agreement (regulation 44(3)(n) of the CPA Regulations),
• allowing the supplier an unreasonably long time to perform (regulation 44(3)( p)
of the CPA Regulations),
• requiring any consumer who fails to fulfil his/her obligation, to pay damages
that significantly exceed the harm suffered by the supplier (regulation 44(3)(r) of
the CPA Regulations), or
• permitting the supplier, upon termination of the agreement by either party, to
demand unreasonably high remuneration for the use of a thing or right, or for
performance made, or to demand unreasonably high reimbursement of expenditure
(regulation 44(3)(s) of the CPA Regulations).

Test for unfair terms

test for unfair The test for unfairness is set out in section 48(2) of the CPA. Section 48(2)(a) of the
terms CPA provides that a term is unfair, unreasonable or unjust if it is excessively
one-sided in favour of any person other than a consumer. Section 48(2)(b) of
the CPA states that if a term of an agreement is so adverse to the consumer as to
be inequitable, the term will be unfair, unreasonable or unjust. As stated above,
a term or agreement can be deemed unfair if the consumer relied on a deceptive
misrepresentation in terms of section 48(2)(c) (see study unit 21, par 21.2 above).
As will be discussed below, a transaction or agreement can also be unreasonable in
terms of section 49(1) (see discussion below par 22.2).

Both substantive and procedural factors of fairness should be taken into account. It
entails an “overall evaluation of the interests involved and would include considerations
of public interest” (Naudé & Eiselen Commentary 48–26). Also, where the consumer
relied upon a false, misleading or deceptive misrepresentation or a statement of
opinion provided by or on behalf of the supplier to his/her detriment, the term
or the agreement will be unfair, unreasonable and unjust (s 48(2)(c) of the CPA).

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 The latter part of the section can have dangerous implications, especially to service
providers such as doctors, attorneys and advocates who give opinions as part of
their professions.

factors to be taken In determining whether a term is unfair, the court must consider all the factors listed
into account in section 52(2) of the CPA, which are as follows:
s 52(2)
• the fair value of the goods or services in question,
• the nature of the parties to that transaction, their relationship to each other
and their relative capacity, education, experience, sophistication and bargaining
position,
• those circumstances of the transaction or agreement that existed or were reasonably
foreseeable at the time that the conduct or transaction occurred, irrespective of
whether the CPA was in force at that time,
• the conduct of the supplier and the consumer, respectively,
• whether there was any negotiation between the supplier and the consumer, and
if so, the extent of that negotiation,
• whether, as a result of conduct engaged in by the supplier, the consumer was
required to do anything that was not reasonably necessary for the legitimate
interests of the supplier,
• the extent to which any documents relating to the transaction or agreement
satisfied the plain language requirements in section 22 of the CPA,
• whether the consumer knew or ought reasonably to have known of the existence
and extent of any particular provision of the agreement that is alleged to have
been unfair, unreasonable or unjust, having regard to any custom of trade, any
previous dealings between the parties,
• the amount for which, and circumstances under which, the consumer could have
acquired identical or equivalent goods or services from a different supplier, and
• in the case of supply of goods, whether the goods were manufactured, processed
or adapted to the special order of the consumer.
Naudé & Eiselen (Commentary 48–20) reason that most of the above factors refer to
defects in the bargaining process.

Although section 52(2) of the CPA is silent on the issue, it has been argued that the
list of these factors mentioned above is not exhaustive, and that the court should be
able to consider any other relevant factors when deciding if a term is unfair (Sharrock
2010 SA Merc LJ 295 314).

Remedies

remedies and Section 52(1) of the CPA provides that, if the court is dealing with a matter in terms
orders that the of section 48 (and section 40 & 41, see study unit 21 above) of the CPA and the
court may make CPA does not provide for a remedy sufficient to correct the unfairness, the court
must consider the factors set out in section 52(2) of the CPA (as discussed above).
Thereafter, the court may make an order covered in section 52(3) of the CPA (as
discussed above). Section 52(3) provides for different remedies where the court
determines that an agreement (in whole or in part) is unfair. The court may declare
the agreement (in whole or in part) unfair and make any further order that the
court considers just and reasonable in the circumstances. This may include an order
to restore money to the consumer, to compensate the consumer for losses or
expenses related to the transaction or the court proceedings, or requiring
the supplier to cease or alter any practice or document to avoid a repetition
of the supplier’s conduct.

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 STUDY UNIT 22: The consumer’s right to fair, just and reasonable terms and conditions

UNFAIR PRICE

unfair pricing In terms of section 48(1)(a)(i) of the CPA, a seller may not offer to supply, supply or
enter into an agreement to supply, any goods at a price that is unfair, unreasonable
or unjust. The test of unfairness in respect of terms contained in section 48(2) of
the CPA referred to above is not applicable to the fairness of the price, and the test
that must be used is not provided for in the CPA. The courts will, therefore, have
to create a test that must be applied when determining whether the price is unfair.
However, the factors listed in section 52(2) of the CPA, as listed above, must still
be considered. The same remedies (see s 51(1)–52(3) of the CPA as discussed above)
in respect of unfair terms will also be applicable to unfair pricing.

INFLUENCE ON EXISTING LAW

Adhering to the principle of contractual freedom, the courts have always
shied away from concluding a contract on behalf of the parties. In a radical
departure from this approach, the courts have now been granted an
equitable discretion to evaluate the substantive fairness of consumer
agreements. This means that the terms in a contract governed by the CPA
will now be subject to a fairness test, in accordance with the above provisions.
In addition, the price in a contract for sale governed by the CPA may not be
unfair, unreasonable or unjust. This is also a departure from the common law
position where there is no requirement that the price should be fair (see Study
Guide 2, study unit 2, par 2.3).

22.2 NOTICE REQUIRED FOR CERTAIN TERMS AND CONDITIONS

(S 49 OF THE CPA)
consumer’s Section 49(1) of the CPA provides that any notice to consumers or any provision of
attention must be a consumer agreement that purports to:
drawn to certain
terms
• limit in any way the risk or liability of the supplier or any other person,
• constitute an assumption of risk or liability by the consumer,
• impose an obligation on the consumer to indemnify the supplier or any other
person for any cause, or
• be an acknowledgement of any fact by the consumer
must be drawn to the attention of the consumer.

According to Naudé & Eiselen (Commentary 49–2) the four types of terms referred
to in this section are clearly exemption clauses, which limit the risk or liability of
the supplier, clauses by which the consumer assumes risk or liability, indemnity
clauses requiring the consumer to indemnify the supplier or any other person for
any cause, and acknowledgements of any fact by the consumer.

Hawthorne (2011 SAPL 431 441) argues that because the CPA has introduced a new
default rule in respect of risk (s 19(2)(c) discussed above), any deviation from the new
default rule would need to comply with the provisions of section 49 of the CPA.

manner of The fact, nature and effect of the provision or notice must be drawn to the attention
notifying the of the consumer in a conspicuous manner and form, such that it is likely to attract
consumer
the attention of an ordinarily alert consumer, having regard to the circumstances

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 (s 49(4)(a) of the CPA). It is submitted by Naudé & Eiselen (Commentary 49–3)
that it will not be sufficient for these clauses to be printed on the reverse side
of a contractual document, albeit in a bigger font or different colour.
notice must be in The notice also has to be in plain language as described in section 22 of the CPA
plain language (s 49(3)).

time of notification Notice must be given before the consumer enters into the transaction or
agreement, or is required or expected to offer consideration for the transaction or
agreement, whichever is the earliest (s 49(4)(b)). Naudé & Eiselen (Commentary 49–3)
give the example that it is therefore no longer possible for adventure sports companies
to book an adventure holiday for the consumer over the phone and to receive
payment, and then to ask the consumer to sign an indemnity form when he/she
arrives at the destination.

The consumer must be given an adequate opportunity in the circumstances to

receive and comprehend the provision or notice (s 49(5)).

Section 48(2)(d) of the CPA provides that a term or condition is unfair, unreasonable or
unjust, if the agreement was subject to a term or condition, or a notice to a consumer
considered in section 49(1) of the CPA, and the term, condition or notice is unfair,
unreasonable or unjust or unconscionable, or the fact, nature and effect of that
term, condition or notice was not drawn to the attention of the consumer in a
manner that satisfied the applicable requirements of section 49(1) of the CPA.

In short, this implies that even where notice was given appropriately, the term
or condition itself could still be declared to be unfair or unreasonable, based
on its content, for example.

notice of a Naudé & Eiselen (Commentary 49–4) explain that mere compliance with these
provision does not notification requirements does not mean that a provision is indemnified and that it
necessarily mean cannot be deleted from the contract because it is unfair, unreasonable or unjust. The
that the provision
is fair court may still regard a provision as unfair even if it is made known to the consumer
timeously and is clearly visible, because it may be found that such a provision is in
any case unfair, unreasonable and unjust when tested against section 48 read together
with section 52(2) (discussed under par 22.1 above).

remedies in Section 52(4) of the CPA provides that if there has been no compliance with the
the case of above requirements relating to proper notice, a court may sever the provision or
non-compliance
notice from the agreement or declare it to have no force or effect with respect to the
transaction, and make any further order that is just and reasonable in the circumstances
with respect to that agreement, provision or notice, as the case may be.

Where the terms are found to be unreasonable, the remedies in terms of section
52(3) of the CPA (as discussed above) will also apply.

INFLUENCE ON EXISTING LAW

Under the reliance theory in the law of contract, a contracting party will, under
certain circumstances, be held liable in terms of a contract if he/she signed
a contract without reading it. However, the CPA now drastically changes
the common law to the extent that certain terms have to be brought to the
attention of the consumer before he/she will incur liability under that specific
term (Naudé & Eiselen Commentary 49–6).

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 STUDY UNIT 22: The consumer’s right to fair, just and reasonable terms and conditions

22.3 WRITTEN CONSUMER AGREEMENTS (S 50 OF THE CPA)

certain agreements Although there is no general requirement in the CPA that consumer agreements
must be in writing must be in writing, the Minister may prescribe an agreement to be written down for
certain categories of consumer agreements (s 50(1)). Where a consumer agreement is
in writing (whether as required or voluntary), the signature of the consumer is not
required for it to be binding on the parties (s 50(2)(a)). Furthermore, the supplier is
obliged to provide the consumer with a free copy or free electronic access to a copy
of the terms and conditions, which must satisfy the plain language requirements in
section 22 of the CPA and set out an itemised break-down of the consumer’s financial
obligations under the agreement (s 50(2)(b)). Where the consumer agreement is not
in writing, the supplier must keep a record of such transactions (s 50(3)).

INFLUENCE ON EXISTING LAW

Generally, under the common law no formalities are required to validly conclude
a sale or lease agreement. However, various statutes contain formality
requirements in respect of certain sale and lease agreements. In respect of
lease, see Study Guide 1, study unit 10, paragraph 10.2.1 (dealing with long
leases of land) and Study Guide 1, study unit 19, paragraph 19.4.1 (dealing
with leases subject to the RHA). In respect of sale agreements, see study
unit 1 above.

22.4 PROHIBITED TRANSACTIONS, AGREEMENTS, TERMS OR

CONDITIONS (S 51 OF THE CPA)
prohibited terms Section 51 of the CPA contains a list of contractual terms that are specifically
and transactions prohibited and may not be included in any contract under any circumstances
(referred to as “black list” terms). The benefit of a black list is that it brings certainty,
as the parties know in advance that such terms will be void.

Section 51 of the CPA provides that a supplier must not make a transaction or
agreement subject to any term or condition, if

• its general purpose or effect is to defeat the purposes and policy of the
CPA, mislead or deceive the consumer, or subject the consumer to fraudulent
conduct (s 51(1)(a)),
• it directly or indirectly purports to waive or deprive a consumer of a right in
terms of the CPA, avoid a supplier’s obligation or duty in terms of the CPA, set
aside or override the effect of any provision of the CPA, or authorise the supplier
to do anything that is unlawful in terms of the CPA, or fail to do anything that
is required in terms of the CPA (s 51(1)(b)),
• it purports to limit or exempt a supplier of goods or services from liability for
any loss directly or indirectly attributable to the gross negligence of the supplier
or any person acting for or controlled by the supplier, constitute an assumption
of risk or liability by the consumer for such a loss, or impose an obligation on a
consumer to pay for damage to, or otherwise assume the risk of handling, any
goods displayed by the supplier, except to the extent that the loss or damage
to displayed goods results from the consumer’s conduct amounting to gross
negligence or recklessness, malicious behaviour or criminal conduct (s 51(1)(c)
and s 18(1)),

LPL4801/3 113
 • it requires the consumer to enter into a supplementary agreement, or sign a
document that contains a prohibited term or condition (s 51(e)),
• it falsely expresses an acknowledgement by the consumer that, before the agreement
was made, no representations or warranties were made in connection with the
agreement by the supplier or a person on behalf of the supplier; or a false expression
that the consumer has received goods or services, or a document that is required
to be delivered to the consumer (s 51(1)(g)),
• it requires the consumer to forfeit any money to the supplier if the consumer
exercises any right in terms of the CPA, or to which the supplier is not entitled
in terms of the CPA or any other law (s 51(1)(h)),
• it expresses, on behalf of the consumer, an authorisation for any person acting on
behalf of the supplier to enter any premises for the purposes of taking possession
of goods to which the agreement relates; an undertaking to sign in advance any
documentation relating to enforcement of the agreement, irrespective of whether
such documentation is complete or incomplete at the time it is signed; a consent to
a predetermined value of costs relating to enforcement of the agreement, except
to the extent that is consistent with the CPA (s 51(1)(i)), or
• it expresses an agreement by the consumer to deposit with the supplier, or with
any other person at the direction of the supplier, an identity document, credit or
debit card, bank account or automatic teller machine access card, or any similar
identifying document or device or to provide a personal identification code
or number to be used to access an account (s 51(1)( j)). However, this does not
preclude a supplier from requesting possession of such an instrument for purposes
of identification or making a copy thereof or asking a consumer to reveal any
personal identification code where it is needed to facilitate a transaction that in
the normal course of business necessitates the provision of such code or number
(s 51(2)(b) and 51(4)).

commentary on Naudé & Eiselen (Commentary 51–4) are of the opinion that a clause that no
prohibited terms representation on warranties have been made, as discussed above, should rather be
a “grey list” term, as it makes sense commercially in certain circumstances that the
parties agree that the signed agreement is the final agreement.

They also explain (51–4) that prohibiting exemption clauses for gross negligence,
does not mean that exemption clauses for ordinary negligence will always be
acceptable if the requirements of section 49 of the CPA have been met, as discussed
in paragraph 22.2 above (see again, s 48(2)(d) of the CPA).

It could therefor still be seen as a term that could potentially be excluded by the grey
item list (discussed above), being a term “excluding or restricting the legal rights or
remedies of the consumer against the supplier or another party in the event …” (par
22.1 above), when the court will have to evaluate the fairness of the term.

remedies in Section 51(3) of the CPA provides that a transaction or provision is void to the extent
the case of that it contravenes section 51 of the CPA.
non-compliance
Section 52(4) of the CPA provides that if such terms and conditions are included in
an agreement, a court may sever any part of the relevant agreement or alter it to
the extent required to render it lawful, if it is reasonable to do so (having regard to
the transaction, agreement, provision or notice as a whole) or even declare the entire
agreement void as from the date that it purportedly took effect. In addition, the
court may make any further order that is just and reasonable in the circumstances
with respect to that agreement, provision or notice, as the case may be.

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 STUDY UNIT 22: The consumer’s right to fair, just and reasonable terms and conditions

INFLUENCE ON EXISTING LAW

Adhering to the principle of contractual freedom, the courts have always
shied away from concluding a contract on behalf of the parties. In a radical
departure from this approach, certain terms and conditions are no longer
allowed in a contract, whether it was agreed upon or not. An example would be
the voetstoots clause, because it is a clause that would purportedly deprive a
consumer of a right in terms of the CPA (the right to goods of good quality
in terms of section 56 of the CPA, read with section 51(1)(b) of the CPA, as
discussed in study unit 23). Many other standard terms that have been included
in contracts to the detriment of the consumer, are now prohibited. The list of
terms prohibited in the CPA is similar to the list of unlawful terms found in
section 89 of the NCA, which is applicable to credit agreements governed by
the NCA (see study unit 10 par 10.3 above).

ACTIVITY
Please reread the factual scenarios at the beginning of this study unit on page 107
and advise Christopher, Richard and Thabo accordingly. YOU CAN ASSUME FOR
PURPOSES OF THIS ACTIVITY THAT THE CPA DOES APPLY IN ALL THREE
FACTUAL SCENARIOS.

22 FEEDBACK
(1) In terms of the common law regarding the law of sale, risk passes to
the purchaser when the sale has become perfect. Therefore, in terms of
the common law, Richard would not have had a remedy, because the sale
agreement was already perfect at the time of destruction. However, the
CPA has amended the risk rule significantly, stating that risk only passes
to the buyer when the buyer has accepted delivery of the thing, unless the
parties have agreed otherwise (section 19(2)(c) – see par 19.4 above).
Therefore, if it were not for the risk clause that was inserted, Vavavoom
(Pty) Ltd would have lost out. Nevertheless, one has to determine whether
such a clause (namely that the consumer will carry the risk before
delivery) is enforceable. Firstly, a term is presumed to be unfair if it has
the purpose of modifying the normal rules regarding the distribution of risk
to the detriment of the consumer (see list of presumed unfair terms, p109).
It is also a term that has to be brought to the attention of the consumer
timeously, in terms of section 49 of the CPA. A starting point would be to ask
whether this clause was legitimately brought to Richard’s attention. If not,
the court will be able to declare the whole agreement void, or declaring it
to have no force or effect with respect to the transaction in terms of section
52 (4) of the CPA. If it was legitimately brought to Richard’s attention, the
court would then have to decide whether this prima facie unfair term (on
the grey list) is deemed to be unfair in this particular circumstance in terms
of section 48 of the CPA. If the court deems the term to be unfair, the court
has the power in terms of section 52(3) of the CPA to make an appropriate
order (see par 22.1 under the remedies discussion).
(2) Although the voetstoots clause is perfectly acceptable under common law,
the CPA has now provided for certain terms to be completely forbidden.
One of these prohibited terms, in terms of section 51(1)(b) of the CPA, is a
term that directly or indirectly purports to waive or deprive a consumer of a

LPL4801/3 115
 right in terms of the CPA (take note not the common law), or to set aside
or override the effect of any provision of the CPA. Therefore, the voetstoots
clause is unenforceable, because it will purport to take away his rights in
terms of section 56 of the CPA. Christopher can exercise his statutory rights
relating to the warranty against latent and patent defects in terms of the CPA.
(3) Here you have to consider a few things. Firstly, you have to identify that this
is an indemnity clause. These terms have to be brought to the attention of
the consumer timeously. Was adequate notice given in terms of section 49
of the CPA? And even if adequate notice was given, does it mean that the
term is fair or can a court still strike it out as unfair in terms of section 48
of the CPA? Also, is it possible that the garage was grossly negligent, and
can liability for gross negligence be excluded in terms of section 51 of the
CPA? These are the issues you must focus on for this question. You also
have to consider the various remedies offered by the various sections.
From these examples you should now realise that you cannot view the
various provisions of the CPA in isolation, nor can you look at the common
law in isolation, without the relevant legislation.

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 THE CONSUMER PROTECTION ACT 68 OF 2008

23 STUDY UNIT 23
The consumer’s right to fair value, good
quality and safety

(1) Vusi buys a vacuum cleaner from Vavavacu (Pty) Ltd. At home he tries it out.
To his disappointment the suction is so weak that it can’t even vacuum the
dust from the floor. Vusi is obviously very disappointed as the vacuum cleaner
was advertised as “super strong”.
(2) Julian buys a ladder from Build-for-U (Pty) Ltd. At home he uses the ladder to
prune his big fig tree. The highest step breaks and he falls, sustaining severe
physical injuries.

OVERVIEW
In this study unit you learn about the consumer’s right to fair, good quality and safety.
You learn about how the term “defect” is broadly defined in terms of the CPA. You
will also learn about the two implied warranties created by sections 55 and 56 of the
CPA relating to the quality of the goods. Most importantly, you will be introduced to
the very effective remedy created by the CPA when defective goods are delivered by
the supplier. Lastly you will be introduced to section 61 of the CPA, which protects
the customer (and also the retailer-supplier) to a large extent when harm is caused
where defective or defective goods have been supplied.

CONTENTS
23.1 DEFINITIONS OF “DEFECTS”, “FAILURE”, “HAZARD” AND
“UNSAFE” (S 53 OF THE CPA)
23.2 THE CONSUMER’S RIGHT TO SAFE, GOOD QUALITY GOODS
AND THE IMPLIED WARRANTY OF GOOD QUALITY (SS 55 &
56 OF THE CPA)
23.3 LIABILITY FOR DAMAGE CAUSED BY GOODS (S 61 OF THE CPA)

LEARNING OUTCOMES

Having studied the material for this study unit, you should be able to:

• explain the definitions contained in section 53 of the CPA

• explain the consumer’s right to safe and good quality goods and the implied
warranties of good quality
• explain the impact of section 61 of the CPA regarding liability for damage caused
by goods

23.1 DEFINITIONS OF “DEFECTS”, “FAILURE”, “HAZARD” AND

“UNSAFE”(S 53 OF THE CPA)
definition of defect The most important definition for purposes of this discussion is the term “defect”
as used in this part of the CPA.

LPL4801/3 117
other definitions Section 53(1)(a) of the CPA defines a defect as follows:

(i) Any material imperfection in the manufacture of the goods

or components, or in performance of the services that renders the
goods or results of the service less acceptable than persons generally
would be reasonably entitled to expect in the circumstances; or
(ii) Any characteristic of the goods or components that renders the goods
or components less useful, practicable or safe than persons generally
would be reasonably entitled to expect in the circumstances.
Section 53(1)(b) of the CPA defines “failure” as the inability of the goods to perform in
the intended manner or to the intended effect. “Hazard” is defined as a characteristic
that (i) has been identified as, or declared to be, a hazard in terms of any other law or
(ii) presents a significant risk of personal injury to any person, or damage to property,
when the goods are utilised (s 53(1)(c)). Section 53(1)(d) of the CPA defines “unsafe”
as meaning that, due to a characteristic, failure, defect or hazard, particular goods
present an extreme risk of personal injury or property damage to the consumer or
to other persons.

INFLUENCE ON EXISTING LAW

This definition of “defect” in this part of the CPA seems to correspond to
the common law requirement that there must be a defect in the article to
hold the seller liable for latent defects (see Study Guide 2, study unit 6, par
6.5.2.). However, it should be clear that the definition of “defect” in the
CPA does not differentiate between latent and patent defects, as the
CPA covers both. Patent defects are, according to the common law, the
buyer’s responsibility, whereas in terms of the CPA, they are the seller’s
responsibility. Once again the common law has been extended for the
benefi t of the consumer.

23.2 THE CONSUMER’S RIGHT TO SAFE, GOOD QUALITY GOODS

AND THE IMPLIED WARRANTY OF QUALITY (SS 55 & 56 OF
THE CPA)
implied warranties First implied warranty
regarding quality
of the goods
Section 56 read Section 56(1) of the CPA read with section 55(2) of the CPA provides that in any
with section transaction or agreement pertaining to the supply of goods to a consumer, there
55 creates two
implied warranties is an implied provision that the producer, importer, distributor and the retailer
each warrant that the goods

• are reasonably suitable for the purposes for which they are generally intended,
• are of good quality, in good working order and free of any defects,
• will be useable and durable for a reasonable period of time, having regard to the
use to which they would normally be put and to all the surrounding circumstances
of their supply, and
• comply with any applicable standards set under the Standards Act 29 of 1993, or
any other public regulation.
The following definitions from section 1 of the CPA are relevant:

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 STUDY UNIT 23: The consumer’s right to fair value, good quality and safety

(a) “Producer” is defined as a person who (a) grows, nurtures, harvests,

mines, generates, refines, creates, manufactures or otherwise produces
the goods within the Republic, or causes any of those things to be done,
with the intention of making them available for supply in the ordinary
course of business or (b) by applying a personal or business name, trade
mark, trade description or other visual representation on or in relation
to the goods, has created or established a reasonable expectation that the
person is a person as mentioned in paragraph (a).
(b) “Importer” is defined as a person who brings those goods, or causes
them to be brought, from outside the Republic into the Republic, with
the intention of making them available for supply in the ordinary course
of business.
(c) “Distributor” is defined as a person who, in the ordinary course of
business, is supplied with those goods by a producer, importer or other
distributor and, in turn, supplies those goods to either another distributor
or to a retailer.
(d) “Retailer” is defined as a person who in the ordinary course of business,
supplies those goods to a consumer. As an example, such a person could
be the seller of goods in a supermarket.
It is evident that, in terms of the CPA, these possible responsible persons are
broadly defined.
Second implied warranty

Section 56(1) of the CPA read with section 55(3) of the CPA creates a second implied
warranty that the goods are reasonably suitable either for the specific purpose
for which the consumer wishes to acquire the goods, or for the use to which
the consumer intends to apply those goods and of which the consumer has
specifically informed the supplier, and the supplier either ordinarily offers to
supply such goods or acts in a manner consistent with being knowledgeable about
the use of those goods.

altered goods / These implied warranties do not apply where the goods fail to meet the required
acting contrary to standard because the goods have been altered contrary to the instructions,
instructions or after leaving the control of the producer, importer, distributor or retailer
(s 56(1)). Naudé & Eiselen (Commentary 56–3) explain that “altered contrary to the
instructions” could be where the goods are used in an unusual or unreasonable
manner.
Section 55(4) of the CPA provides that, in determining whether any particular goods
satisfy the requirements of the above two warranties, all of the circumstances of the
supply of those goods must be considered, including but not limited to the following:
(a) the manner in which, and the purposes for which, the goods were
marketed, packaged and displayed, the use of any trade description or
mark, any instructions for, or warnings with respect to the use of the
goods,
(b) the range of things that might reasonably be anticipated to be done with
or in relation to the goods, and
(c) the time when the goods were produced and supplied.
Section 55(5) of the CPA provides that for greater certainty in applying section 55(4)
of the CPA it is irrelevant whether a product failure or defect was latent or
patent, or whether it could have been detected by a consumer before taking
delivery of the goods; and a product failure or defect may not be inferred in respect

LPL4801/3 119
 of particular goods solely on the grounds that better goods have subsequently become
available from the same or any other producer or supplier.
exceptions to There are two exceptions to the above warranties and rights. Firstly, goods sold at
the statutory auctions are excluded from both warranties (s 55(1)). Secondly, the first two bullet
warranties points relating to the first warranty (guarantee regarding suitability for purpose and
the warranty of good quality) do not apply if the consumer has been expressly
informed that particular goods were offered in a specific condition, and the
consumer has expressly either agreed to accept the goods in that condition,
or knowingly acted in a manner consistent with accepting the goods in that
condition (s 55(6)).
six month period Within six months after the delivery of any goods to a consumer, the consumer
to return the goods may return the goods to the supplier, without penalty and at the supplier’s risk
and expense, if the implied warranties are breached, and the supplier must,
at the direction of the consumer, either repair or replace the failed, unsafe or
defective goods, or refund to the consumer the price paid by the consumer
for the goods (s 56(2)). If a supplier repairs any particular goods or any component
of any such goods, and within three months after that repair, the failure, defect or
unsafe feature has not been remedied, or a further failure, defect or unsafe feature
is discovered, the supplier must replace the goods or refund to the consumer the
price paid by the consumer for the goods (s 56(3)).
Section 56(4) of the CPA further states that these implied warranties are in addition
to (a) any other implied warranty or condition imposed by the common law, the CPA
or any other public regulation, and (b) any express warranty or condition stipulated
by the producer or importer, distributor or retailer, as the case may be.
One of the more difficult questions created by these provisions is: does “the six-
month period set in section 56(2) limit the implied warranty of goods under section
56(1) of the CPA itself to six months, or does the reference to six months only limit
the consumer to exercise his remedies under section 56(2) within the time period
of six months?” (Jacobs, Stoop & Van Niekerk 2010 PELJ 301 372). The preferred
view is as follows (idem 373):
Under the latter interpretation, the consumer’s remedies under Section 56(2)
would still have to be enforced within six months after delivery of the goods,
but the implied warranty of good quality will exist indefinitely, and the con-
sumer would be able to rely on his/her common law rights to claim damages
where breach of the implied warranty of quality occurred six months or longer
after the delivery of the goods. The normal period of prescription for the
institution of a claim for damages would apply. It is the authors’ opinion that
the latter interpretation would be followed, as it provides better protection
to the consumer.
Vousvoukis case In the decision of Vousvoukis v Queen Ace CC t/a Ace Motors 2016 3 SA 188 (ECG),
a few important and interesting aspects were raised regarding the application and
provisions of the CPA. The plaintiff bought a second-hand BMW from the defendant
on 13 September 2011. The engine collapsed a few months later, and a new engine
was installed during February 2012. Although the plaintiff initially agreed to pay
a portion of the price for the new engine, he never did. In July 2012, the vehicle
broke down again, and the plaintiff wanted to rely on section 56 (2) of the CPA in
order to return the car to the garage and claim back the purchase price that he paid
for the BMW. The defendant argued that the six months period has lapsed. The
plaintiff averred that the installation of the second engine was a new supply of
goods, which entitled him to rely on section 56(2) of the CPA, as the engine broke

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 STUDY UNIT 23: The consumer’s right to fair value, good quality and safety

down within the six months period after its installation. However, the court decided
differently: The court regarded the second installation of the engine was a repair to
the BWM, rather than a supply of a new engine. Secondly, because the plaintiff did
not pay for the second engine, it could not be regarded as a “transaction” in terms
of the CPA, as there was “no exchange for consideration”. Lastly, the court decided
that no extension to the six month period could be allowed as that would create
legal uncertainty. The plaintiff could therefore not cancel the agreement in terms
of this section. He could also not return the vehicle based on the actio redhibitoria, as
the defect in the second engine (broken oil filter) was not serious enough to cancel
the contract.

critique The decision is open to criticism. Firstly, it is superficial to say that an installation of
an engine is not a separate supply of goods. Secondly, although the plaintiff never
paid for the second engine, a price was agreed upon. The defendant had to pursue
this debt, but it can’t be said that the transaction was without consideration.

INFLUENCE ON EXISTING LAW

These provisions have important consequences for the common law warranty
against latent defects (see Study Guide 2, study unit 6).

• Firstly, the two implied warranties in the CPA are in addition to the common
law warranty against latent defects (s 56(4) read with s 2(10). Therefore, the
consumer would still be able to institute the common law remedies (namely,
the actio redhibitoria or the actio quanti minoris), but then the common law
requirements for these remedies would have to be met.
• Secondly, the warranties in the CPA have a wider application than the
seller’s liability for latent defects. It is not a requirement that the defect
must be latent (both latent and patent defects are covered by the CPA). It is
also irrelevant whether the defect could have been detected by a consumer
before taking delivery of the goods, neither does the CPA require that the
defect must have existed at the time the contract was entered into.
• Thirdly, section 56(2) of the CPA provides the consumer with the choice
of asking the supplier for a repair, replacement or refund. This is not the
case under the common law. The actio redhibitoria (the remedy that allows
the contract to be set aside and subsequent restitution) would usually be
available if the purchaser can prove that a reasonable person would not
have bought the article had he/she been aware of the defects, and the actio
quanti minoris (the remedy that only allows for a reduction of the purchase
price) is intended for less serious cases, namely, where a reasonable person
would still have bought the thing, but would merely have paid less for it had
he/she been aware of the defect (Study Guide 2, study unit 6, par 6.5.3).
Furthermore, the remedies under section 56, like the aedilitian remedies
would not include consequential damages that could be claimed with the
actio empti in the case of manufacturers and dealers (Study Guide 2, study
unit 6, par 6.6). However, such damages could possibly be claimed under
section 61 (see below par 23.3).

LPL4801/3 121
 • Fourthly, Barnard argues that this would mean that “a voetstoots clause
will never become operational” (CPA and sale 391), when the CPA applies
to a transaction. She further argues against the survival of the voetstoots
clause, referring to the following sections: section 2(10) of the CPA, which
provides that no provision of the CPA may be interpreted so as to preclude
a right that a consumer has in terms of the common law (which would
include the warranty against latent defects); section 56(4), which provides
that the implied warranty in section 56(1) is in addition to any other warranty
in terms of the common law; and section 51(1)(b)(i) (as discussed in par
22.4 above), which prohibits any term or condition if it directly or indirectly
purports to waive or deprive a consumer of rights in terms of the CPA
(Barnard CPA and sale 395).
This does not mean that the supplier cannot sell goods in a particular condition
(e.g. second-hand goods). The supplier will just have to comply with section 55(6)
(a) in that the consumer was expressly informed that the particular goods were
offered in a specific condition and has expressly agreed to accept the goods
in that condition, or knowingly acted in a manner consistent with accepting the
goods in that condition. This entails a shift from the caveat emptor (buyer
beware) rule to a general duty to disclose defects to the consumer (buyer)
(Barnard CPA and sale 396–397).

23.3 SECTION 61 REGARDING LIABILITY FOR DAMAGE CAUSED BY

GOODS
Section 61 of the CPA deals with liability for damage caused by goods. Firstly, it is
important to remember that, save for a few limited exceptions, this section applies
to most sale transactions (whether the CPA applies to that specific transaction
or not). In this respect, see paragraph 18.4.3 above. Secondly, the provision cannot
be waived or limited by any contractual provisions (see again the discussion of s
51 in par 22.4 above). Where the CPA does not apply to a transaction, Naude &
Eiselen (Commentary 61–3) explain that the defendant would have to be a producer,
importer, distributor or retailer as defined in section 1 of the CPA, to attract liability
under section 61.
Section 61(1) of the CPA provides that the producer or importer, distributor or retailer
of any goods is liable for any harm caused wholly or partly as a consequence of (a)
supplying any unsafe goods, (b) a product failure, defect or hazard in any goods,
or (c) inadequate instructions or warnings provided to the consumer pertaining
to any hazard arising from or associated with the use of any goods, irrespective of
whether the harm resulted from any negligence on the part of the producer, importer,
distributor or retailer.
“Harm” includes (a) the death of, or injury to, any natural person, (b) an illness of
any natural person, (c) any loss of, or physical damage to, any property, irrespective
of whether it is movable or immovable, and (d) any economic loss that results from
harm contemplated in (a), (b) or (c) (s 61(5)).
defences Where more than one person is liable, their liability is joint and several (s 61(3)).
It is a defence if the above envisaged harm is wholly attributable to the compliance
with any public regulation, or if the alleged unsafe product characteristic, failure, defect
or hazard did not exist in the goods at the time it was supplied by the defendant to
another person alleged to be liable, or harm arose from the defendant complying with

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the instructions provided by the person who supplied the goods to the defendant,
or if it is unreasonable to expect the distributor or retailer to have discovered the
shortcomings in the goods, taking into account that person’s role in marketing the
goods to consumers (ss 61(4)(a)–(c)).
It is also a defence that the claim for damages is brought more than three years after
the following: the death or injury of the person, the earliest time at which a person
had knowledge of the material facts about the illness, (or) the earliest time at which
a person with an interest in any property had knowledge of the material facts about
the loss or damage to the property, (or) the latest date on which a person suffered
the economic loss (s 61(4)(d)).
Glover (Sale and Lease 251) states correctly that it is not possible for the supplier and
consumer to exclude the protection offered by this section, because of section 51 of
the CPA, discussed above.
Glover also explains that it is not necessary to prove a contractual link between the
parties in order to find liability, and that normal contractual and/or delictual liability
will possibly also be applicable.
recent case law It seems like the courts are inclined to interpret section 61 of the CPA very broadly.
In Halstead-Cleak v Eskom Holdings Ltd 2016 2 SA 141 (GP), the plaintiff was severely
injured when he, whilst riding with his bicycle, came into contact with a low hanging
live power line adjacent to the road, which power line belonged to the defendant. The
plaintiff invoked section 61 of the CPA in order to claim for his damage resulting
from his physical injury. The defendant raised the defence that the plaintiff was not
a consumer in the true sense, as he was not utilising electricity at his home.
The court found in favour of the plaintiff, saying that section 61 of the CPA explicitly
offers protection to any person, and not only consumers.

criticism It is true that section 61 of the CPA offers protection to “any person”, however, the
court omitted to consider whether there was a “transaction” between the plaintiff
and the defendant. This decision by the court could potentially open up a floodgate
of litigation where no link is required between the supplier and the plaintiff. It could
be argued that the plaintiff should have rather relied on the conventional delictual
remedy.

INFLUENCE ON THE EXISTING LAW

Negligence is a requirement for establishing delictual liability under the common
law. This has now been changed by this provision, which has introduced no-
fault or strict liability. However, this liability is limited by the possible defences
listed in section 61(4) of the CPA.
It is also possible that the liability created under section 61 could overlap with
the common law warranty against latent defects and, especially, the liability
of manufacturers and dealers for consequential damages caused by latent
defects, although this common law liability has specific requirements (see study
guide 2 par 6.6). It could also overlap with the implied warranty in respect of
the quality of the goods in sections 55 to 56 of the CPA (discussed above). As
the concept of harm under section 61 is very broad, it could possibly provide
for more extensive remedies than those provided under the common law and
section 56 of the CPA.

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 ACTIVITY
Reread the factual scenarios at the beginning of this study unit on page 117 and
advise Vusi and Julian accordingly. YOU CAN ASSUME FOR PURPOSES OF THIS
ACTIVITY THAT THE CPA DOES APPLY IN THESE TWO FACTUAL SCENARIOS.

23 FEEDBACK

(1) At first Vusi will have the normal common law remedies at his disposal. He
could argue that Vavavacu (Ltd) made a dictum et promissum (and not mere
puffery), by advertising that the vacuum cleaner is “super strong”. The fact
that the vacuum cleaner cannot vacuum light dust could also be seen as a
latent defect, because it can be seen as a defect that destroys or impairs the
usefulness of the thing sold for the purpose for which things of that kind are
ordinarily intended to be used. If successful, the remedies in both instances
will be the aedilitian remedies, where he could get back his purchase price
or ask for a reduction of the purchase price. Possibly, one could also argue
that the seller made a misrepresentation, if all the requirements are met, and
claim damages. However, Vusi can avail himself of the remedies provided
for in sections 55 and 56 of the CPA (based on the defect), and even the
remedies provided for in section 52 (based on the false marketing; s 41)
of the CPA. Discuss in detail and remember to apply the law to the facts.
(2) Although the ladder had a latent defect (go back and revise the requirements
of a latent defect), the aedilitian remedies will not be of much assistance to
Julian to claim his medical expenses from the seller, based on the common
law. However, if he can prove that the seller was an expert dealer, he could
possibly claim consequential loss issuing from the latent defect, based on
the common law. However, for an easier litigious route, he now also has
a remedy in terms of section 61 of the CPA, holding the retailer liable for
any harm caused as a consequence of supplying any unsafe products, or
a product failure, defect or hazard. Harm includes the injury to a natural
person. Discuss in detail and remember to apply the law to the facts.

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BIBLIOGRAPHY

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Du Plessis H ‘Display of goods for sale, advertisements and the Consumer Protection
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Glover G Kerr’s law of sale and lease 4th ed (LexisNexis 2015).
Hawthorne L ‘Responsive governance: consumer protection legislation and its effect
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