Contracts of Sale Basic Principles; pp137 - 154

Contracts of sale Definition A reciprocal agreement: seller transfers a thing and all his rights in that thing to purchaser, who pays money in return. All rights in the merx? Not a requirement that seller be the owner of the merx, need only transfer undisturbed possession. Seller must intend to transfer all his rights in the merx to the buyer.

Essentialia Essentialia distinguish a particular type of contract. Essentialia of a contract of sale: Price Subject matter The other requirements for a valid contract must also be present. Certain contracts of sale may be subject to formalities, eg. sale of immovable property.

Essentialia contd… The object (merx) Merx must be determined/ determinable at time when sale concluded If merx destroyed before contract entered into: no sale possible If merx destroyed after contract entered into but before delivery: party bearing risk loses

Merx contd… Merx must be merchantable: must belong to someone and be capable of being sold commercially. Merx may be movable, immovable, incorporeal. The sale of a non-existent merx is void. One may, however, sell a non-existent thing which may come into existence. Eg. sale of a fishing boat’s catch before it goes to sea.

Price Price must be determined or determinable. Either a specific price or a method by which price can be determined without reference to parties. Payment must be at least partly in money, otherwise not a contract of sale: May be a contract of exchange instead. Mountbatten Investments (Pty) Ltd v Mohamed 1989 (1) SA 172 (D) Test: which is of greater value – goods or money. If same, presumption of sale.

Passing of ownership Only the owner of a merx may transfer ownership Nemo plus iuris rule Therefore a mala fide seller misrepresents a material aspect of the contract and the contract is voidable. If seller is bona fide the contract can’t be set aside. The buyer is protected in these circumstances by the implied warranty against eviction.

When is ownership transferred? Passing of ownership requires more than just conclusion of contract. Different requirements for movable and immovable property. Requirements for passing of ownership in a sale of immovable property: Seller must be owner of the property Seller must have intention of transferring ownership and buyer must have intention of receiving ownership Property must be registered in name of buyer in the Deeds Office

Ownership in movable property Requirements for passing ownership in a sale of movable property: Seller must be owner of the merx Seller must have intention to transfer ownership and buyer intention to receive ownership Effect of delivery depends on whether sale is for cash or credit: Cash sale: payment and delivery expected at same time. Ownership passes upon payment and delivery. Credit sale: Delivery now, pay later. Ownership passes on delivery.

Cash sales v credit sales It may be difficult to distinguish cash and credit sales: This is a question of fact: depends on surrounding circumstances whether parties intended cash or credit sale. In the absence of agreement: rebuttable presumption that every sale is for cash. Eriksen Motors (Welkom) v Protea Motors, Warrenton 1973 (3) SA 685 (A)

The passing of risk General rule in contracts of sale: risk of destruction of merx passes to buyer once contract is perfecta. Any benefit which accrues to the merx passes when the risk passes. Parties may vary this common law position by agreement. Damage to merx must not be caused due to fault of either party, but due to “acts of god”.

Passing of risk contd… Remember risk and benefit pass to buyer only once contract is perfecta. Contract is perfecta when 3 requirements met: Merx must be determined, not merely determinable Price must be determined, not merely determinable Contract not subject to a suspensive condition

Rights and duties of parties to a contract of sale There are duties placed on the buyer and seller by operation of law in a contract of sale. The parties are free to vary or exclude these by agreement. Duties of the seller Duty of seller to deliver merx Delivery may be actual or constructive

Duties of seller contd… Duty of safe-keeping In period between conclusion of contract and delivery, seller has a duty to look after the goods. Seller liable for harm caused to goods in this period as a result of fault on his part. ie. negligence or intentional harm If buyer is in mora, seller only liable for gross negligence, intentional harm.

Duty of safe-keeping contd… Risk of accidental damage to goods (not caused by fault of seller) lies with buyer once contract is perfecta.

The implied warranty against eviction Seller of the merx not required to be its owner. Seller merely undertakes to transfer undisturbed use of the merx to the buyer. Therefore: seller warrants that buyer will not be evicted by a 3rd party with stronger title to the merx. This warranty is a naturale of a contract of sale (residual term). It may, however, be excluded by agreement.

Requirements for the implied warranty against eviction Notice to the seller Buyer must notify seller of threatened eviction. Seller can then assist buyer in his defence against 3rd party. Buyer must conduct a proper defence Referred to as a “virilis defensio” Even if seller does not assist buyer, he must put up a proper defence to 3rd party. Otherwise may lose right of recourse against seller.

Requirements contd… Reason for this requirement: claim of 3rd party may be refutable and could be resisted. If buyer proves claim is irrefutable, he may have recourse against seller without having made a proper defence. In the event of eviction: Seller must restore price and pay any damages suffered by buyer. If value of merx has increased between time of sale and time of eviction, buyer must be paid the difference.

Requirements contd… In the event of eviction contd… If buyer has made improvements, may resist claim of 3rd party until 3rd party has compensated him for these. But: enrichment may be hard to prove, thus buyer may claim value of improvements from seller if he fails to assist in the defence. Lammers & Lammers v Giovannoni 1955 (3) SA 385 (A)

Warranty against latent defects A latent defect in the merx is a hidden flaw which renders merx unfit for the purpose for which it was bought. Seller must disclose all latent defects to the buyer, otherwise he must compensate the buyer under the aedilitian remedies. Seller is liable for latent defects even if he acted bona fide, hence sellers often include a voetstoots clause in a contract of sale

Warranty against latent defects contd… Voetstoots clauses A voetstoots clause excludes liability for latent defects. A voetstoots clause will not protect the seller if he acted fraudulently. If the buyer knew of the defect at the time of sale, he will have no action against the seller.

Requirements for warranty against latent defects The defect must be latent Distinguish a latent and an obvious (patent) defect: Latent defect not discoverable by a reasonable person upon proper inspection. Lakier v Hager 1958 (4) SA 180 (T)

Requirements contd… (b) The defect must impair the utility of the merx A defect is an abnormal quality which impairs the effectiveness of the merx for the purpose for which it has been sold. Sarembock v Medical Leasing Services (Pty) Ltd 1991 (1) SA 344 (A) Defect must be “abnormal” ie. One would not expect to find such a defect in a merx of that type, age and price.

Requirements contd… If the problem is not abnormal in this sense, then it’s not a defect, even though it impairs functionality of merx. Curtaincrafts (Pty) Ltd v Wilson 1969 (4) SA 221 (E) (c) The defect must exist at time of conclusion of the contract Onus on buyer to prove this Seboko v Soll 1949 (3) SA 338 (T)

Remedies for latent defects The aedilitian remedies are available for breach of implied warranty against latent defects. Action is for purchase price (actio redhibitoria) or price reduction (actio quanti minoris). Usually one can’t claim consequential losses.

1. Actio redhibitoria Available where defect is so material that buyer would not have purchased had she known about it. Remedy aims to put parties in position they were before contract was concluded: Buyer may claim purchase price, seller may claim merx.

2. Actio quanti minoris Where defect is not material, buyer can only claim price reduction. Price reduction = purchase price - true value in defective state. Cf. Sarembock v Medical Leasing Services

Consequential losses? Usually there is no claim available for consequential losses under the aedilitian remedies, but in certain circumstances it does exist: Seller is aware of defect in goods and fraudulently fails to disclose it. Seller is the manufacturer of the goods Seller professes expert knowledge of the goods Holmdene Brickworks v Roberts Construction Co Ltd 1977 (3) SA 670 (A)

Duties of the buyer Payment of the purchase price Accepting delivery