Bla100 - 152 2024 02 SG

Business Law I
BLA100/152
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Table of Contents
Heading Page number
WELCOME 1
MODULE PURPOSE AND OUTCOMES 1
Topic 1 Introduction 3
1.1 Introduction 3
1.2 Courts in South Africa 4
1.3 Science of Law 4
Topic 2 General Principles of the Law of Contract 8

2.1 Introduction 8
2.2 Consensus 9
2.3 Capacity to Perform Juristic Arts 15
2.4 Agreement Must Be Possible 18
2.5 Formalities 20
2.6 Terms of Contract 22
2.7 Interpretation of the Contract 25
2.8 Breach of Contract 27
2.9 Remedies for Breach of Contract 29
2.10 Transfer and Termination of Personal Rights 31
Topic 3 The Contract of Sale 37

3.1 Introduction 37
3.2 Rights and Duties of Buyer and Seller 38
3.3 Transfer of Ownership 40
3.4 Passing of Risk 40
Topic 4 The Contract of Lease 42

4.1 Introduction 42
4.2 Rights and Duties of the Parties 43
4.3 Termination of a Lease 43
4.4 Statutory Protection of Tenants 44
Topic 5 The Contract of Insurance 45

5.1 Introduction 45
5.2 Types of Insurance 45
5.3 Essentialia 46
5.4 Duty of Good Faith 47
5.5 Other Parties to the Contract 47
5.6 Statutory Provisions regarding the Insurance Contract 48
Topic 6 Intellectual Property Law and Franchising 49

6.1 Introduction 49
6.2 Comparison between the Law of Copyright and the Law of Patents 50
6.3 The Law of Trademarks 51
6.4 Franchising 52
Topic 7 Forms of Business Enterprise 54

7.1 Introduction 54
7.2 Sole Proprietorship 55
7.3 Partnership 55
7.4 Companies 57
7.5 The Close Corporation 60
7.6 The Business Trust 62
7.7 The Co-Operative 62
Topic 8 The Law of Competition 64

8.1 Introduction 64
8.2 Public Competition Law 65
8.3 Private Competition Law 65
Topic 9 The Law of Trusts 69

9.1 Introduction 69
9.2 Basic Features 70
9.3 Trust Property Control Act 47 of 1988 70
9.4 Requirements for Creation of Valid Trust 70
9.5 The Office of Trustees 72
9.6 The Administration of the Trust 75
9.7 The Trust Beneficiary 77
9.8 Revocation, Variation and Termination 77
9.9 Other Legal Institutions Similar to a Trust 78
Topic 10 The Law of Insolvency 80

10.1 Introduction 80
10.2 Voluntary Surrender 81
10.3 Compulsory Sequestration 81
10.4 Consequences of Sequestration 82
10.5 Impeachable Dispositions 84
10.6 Appointment of Trustee 84
10.7 Meetings with Creditors 85
10.8 Proving of Claims by Creditors 85
10.9 Realisation and Division of Estate 85
10.10 Composition 86
10.11 Rehabilitation 86
10.12 Winding Up of Companies and Close Corporations 86
REFERENCES 88
ANSWERS TO SELF-ASSESSMENT QUESTIONS 89

ASSIGNMENT
Semester 2 2024
Module name Introduction to Business Law
Module code BLA100/152
Due date 20 September 2024
Total marks 75
This assignment is compulsory and must be submitted through CANVAS,

inside the corresponding Module Course site on or before
20 September 2024 by 24:00.
STEP 1: COMPLETING YOUR ASSIGNMENT

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COVER PAGE
Please include the following information on the first page of the assignment:
Name, Surname, Student Number and Module Code.
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document (File > Save As > Save as Type: PDF).
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LIST OF REFERENCES
Refer to the STADIO Referencing guide HERE for guidance.
©STADIO [Introduction to Business Law – BLA100/152] [Assignment – 2024 Semester 2]

Page 1 of 7
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• You are not allowed to use AI (Artificial Intelligence) in this assignment. If any AI is
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academic dishonesty.
• Plagiarism will not be tolerated. Your similarity score may not exceed 40%.

Page 2 of 7
ARTIFICIAL INTELLIGENCE TRAFFIC LIGHT MATRIX (AIMat)
Question/Part RED AMBER GREEN
Part May NOT May MUST use AI Detail of AI use
use AI use AI
Question 1 You may not use AI.

General You may not use AI.
NOTE:
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• Refer to the STADIO Referencing Guide for guidance.
Question 1 (10 marks)
Each of the following sub-questions contains one statement but with multiple possible answers.
Only one of the answers is correct. Read each statement very carefully and then decide which
one of the options is the correct one. Write down only the sub-question number and next to it
the letter that represents the answer you have selected.
Example: If you believe that for sub-question 1.6, option C is correct, then write down: 1.6. C.
1.1 Which ONE of the following legal systems is the basis of the South African legal
system?
A. Dutch law
B. Roman law
C. Roman-Dutch law
D. English law

Page 3 of 7
1.2 At a public meeting of a residents’ association the chair of the meeting calls Samuel a
slumlord. The chair of the meeting confused Samuel with Samantha. Highly
embarrassed by this statement Samuel wishes to sue the chairperson.
Which of Samuel’s rights has the chairperson infringed?

A. A personality right
B. A personal right
D. A real right
D. An intellectual property right
1.3. Which ONE of the following statements is CORRECT?

A. A contract cannot be entered into by more than two parties.
B. An agreement is a particular type of contract.
C. An agreement is a source of legal obligations.
D. A contract creates legally enforceable obligations.
1.4. Peter concludes an agreement with Gary to kill his mother-in-law by 1 July 2024. Gary
agrees, but requests Peter to pay a deposit of R30 000 to enable him to buy a firearm.
Peter pays the R30 000 to Gary on 1 June 2024, but by 31 October 2024 Peter’s
mother-in-law was still alive. Peter now no longer wants to continue with the contract.
Is there a valid contract between Peter and Gary?

A. No, the contract is void due to illegality.
B. Yes, the parties reached consensus on all the terms and conditions of the
contract and Peter has already paid the deposit.
C. No, the contract is void due to non-compliance with formalities.
D. Yes, the parties reached consensus on all the terms and conditions of the
contract through a process of offer and acceptance.

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1.5. Lucy inherited her late grandmother’s sewing machine worth R30 000. Lucy lives with
her parents in a cottage that they rent on a smallholding. Lucy is sixteen years old.
Lucy loves designer shoes and intends to sell the sewing machine to buy designer
shoes.
Which ONE of the following statements is CORRECT?

A. Lucy needs her parents' assistance to sell the sewing machine because she is
a minor.
B. Lucy does not need her parents' assistance to sell the sewing machine
because she inherited it.
C. Lucy does not need her parents' assistance to sell the sewing machine
because she reached majority at the age of fourteen.
D. Lucy needs her parents' assistance to sell the sewing machine because the
value of the sewing machine is more than R25 000.
Discuss the difference between “Law of persons” and “Law of personality”.
3.1 Gugu visits a well-known furniture store to purchase a leather lounge suite. The
manager of the store shows her a beautiful black suite and informs her that the lounge
suite is made of genuine cow’s leather. Based on this information she pays R20 000
for the suite. After a month, her cat scratches the suite and she takes it to an
upholsterer to be repaired. The upholsterer informs her that the lounge suite is fake
leather and not worth more than R3 000.
Answer the following:
3.1.1 Discuss the requirements for a valid contract. (5)
3.1.2 Indicate whether the contract that was concluded is valid and enforceable. Also
indicate what Gugu would have to prove (the requirements that must be met) for
Gugu to avoid being held bound to the terms of the contract. (6 X 2 = 12)

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Question 4 (8marks)
4.1 The risk in a contract of sale, can pass to the buyer even before the transfer of
ownership if the contract has become “perfecta”. What do you understand by the
term “perfecta”? Briefly explain. (5)
4.2 Patricia sells her car to Elzabe. They agree that Patricia will rent the car from Elzabe
for six (6) months. Discuss the form of delivery that has taken place. (3)
Zack has always wanted to own a candy store. Zack has identified an ideal building in Pretoria
where he wants to conduct his business. The building is the property of Cody. After various
negotiations, Zack and Cody entered into a lease agreement where Zack is the lessee and Cody
the lessor. The lease is for a period of 12 months and rent is payable at R25 000 per month.
Explain to Zack what the duties of the parties in terms of the lease agreement would be.
6.1 With respect to indemnity insurance, if a house valued at R1 000 000 is insured against
fire and at the time of its subsequent destruction by fire is worth R1 500 000, what
would the maximum value be that the insured can recover from the insurer? (1)
6.2 In terms of the law of trademarks, why is it possible to have both LION matches and
LION beer when they clearly share the same name? (4)
6.3 Mannie is the director of a newly formed company called Quick-Fix Ltd which provides
goods and services to the automotive industry. Mannie is unsure what his common
law duties as a director are. Explain to Mannie what these common law duties are. (2)

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Evaluate each of the statements below and identify whether they are true or false. You need to
explain your answer. One mark will be awarded for identifying whether the statement is true or
false and one mark will be awarded for your explanation.
7.1 South African law recognises four forms of the contract of lease. (2)
7.2 Life insurance will typically form part of indemnity insurance. (2)
7.3 With respect to a literary work, copyright is conferred during the life of the author and
for a period of 40 years from then end of the year in which the author dies. (2)
7.4 A mark that is distinctly similar to a well-known unregistered foreign mark may be
registered as a trademark. (2)
7.5 In terms of a sole proprietorship, the assets of the owner and business are separated.
(2)
One of the fundamental principles of the law of contract is pacta sunt servanda which means
that the obligations in terms of an agreement must be honoured. You are required to write a
short research-based essay on pacta sunt servanda in which you identify three South African
judicially decided cases that dealt with this important principle.
Marks will be given for the following:
A good introduction. (1 mark)
A case law discussion of at least three South African judicially decided cases that specifically
dealt with pacta sunt servanda. (9 marks) Marks will be awarded for your case name (1), the
issue before the court, (1) and the court decision. (1)
A concise conclusion that draws everything together. (1 mark)
Good academic writing. (1 mark)
The prescribed referencing style of the Journal of Contemporary Roman-Dutch Law (THRHR)
applies. Your essay may not exceed 700 words.
ASSIGNMENT TOTAL: 75 MARKS

Page 7 of 7
List of Tables
Table Page number
Table 1.1 Provision of the Constitution in the Court System 4

Table 2.1 Offers Address to a Specific or Unknown Person(s) 10
Table 2.2 Offers Fall Away 11
Table 2.3 Common Law and Statutory Rules Applicable to Different
Circumstances 11
Table 2.4 Characteristics of Misrepresentation 13
Table 2.5 Differentiation between Capacity to Act and Legal Capacity 15
Table 2.6 Different Age Groups Distinguished by Law 16
Table 2.7 Outcome If a Minor Concludes Contracts without Guardian’s
Assistance 17
Table 2.8 Contracts Must Be Legally Possible 18
Table 2.9 Contracts Require Formalities 20
Table 2.10a Classification of Terms 22
Table 2.10b Classification of Terms 23
Table 2.11 Suspensive Condition 24
Table 2.12 Resolutive Condition 24
Table 2.13 Contractual Definitions 24
Table 2.14 Breach of Contract 27
Table 2.15 Breach and Cancellation of Contract 30
Table 2.16 Termination of Obligations 32
Table 3.1 The Common-Law Rights of the Buyer and Corresponding Duties
of the Seller 38
Table 4.1 Termination of a Lease 43
Table 5.1 Comparing Indemnity and No Indemnity Insurance 46
Table 5.2 Essentialia of the Insurance Contract 46
Table 5.3 Differentiation between an Insurance Broker and Insurance Agent
47
Table 6.1 A Brief Comparison between the Law of Copyright and the Law of
Patens 50
Table 7.1 Forms of Enterprises 55
Table 7.2 The Essentialia of a Partnership 55
Table 7.3 The Organs of the Company 58
Table 7.4 Rules regarding Agency in Company Law 59
Table 8.1 Delictual Element and Description 65
Table 8.2 Requirements for an Interdict 66
Table 9.1 Requirements for Creation of Valid Trusts 71
Table 9.2 Lawful Appointment 72
Table 9.3 Duties of the Master 73
Table 9.4 The Administration of Trust 76
Table 9.5 Rights of the Beneficiary 77
Table 9.6 Revocation 77
Table 9.7 Variation of Trust 78
Table 10.1 Consequences of Sequestration 82
Table 10.2 Realisation and Division of Estate 85
Welcome
Welcome to Business Law I (BLA100/152).
Module Purpose and Outcomes
The purpose of this module is to provide students in the field of commerce and
other relevant studies with a general understanding of the South African legal
system and law related to business, and to equip students with knowledge, skills
and competencies to analyse and solve basic problems relating to the general
principles of business law, and the identification and application of the legal
principles that will guide decision-making and action successfully in the legal
arena.
Upon successful completion of this module a student will be able to:
1. Demonstrate knowledge of the South African legal system and the science
of law.
2. Demonstrate knowledge of the historical and general background to South
African law.
3. Apply definitions of various concepts pertaining to South African law and
the functioning of the South African legal system.
4. Understand and apply the general principles of law of contract and the legal
principles related to specific contracts.
5. Apply the basic principles of Business Law to factual situations in order to
advise a client.
Note
Any reference to masculine gender may also imply the feminine. Singular may
also refer to plural and vice versa.
© STADIO (Pty) Ltd Business Law I

1
Prescribed Reading
The prescribed textbook for Business Law (BLA152) is:

• Schulze, H., Manamela, T., Stoop, P., Manamela, E., Hurter, E. & Masuku,
B.P. and Stoop, C. (2019). General principles of commercial law. 9th ed.
Lansdowne: Juta. [ISBN: 978–1–485–13493–0]

2
Topic 1
Introduction
Prescribed Reading
Before continuing with this topic, please read Section A: Chapters 1 and 2 in your
prescribed textbook. Please ensure that you read these study notes carefully as
there is additional information in this guide, which is not found in the prescribed
book.
1.1 Introduction
After completing this topic, you should be able to:

• Demonstrate an understanding of the origins and sources of the
South African Law and the South African court structure.
• Explain the different fields of law.
We will know that you understand the origins and sources of South African law,
the South African court structure and the classification of the different fields of
law when you can name the origins and sources of South African law in order of
preference and give a graphic representation of the court structure and the
different fields of law.
Current South African law developed from:

Roman Law – The law as it developed in Rome in ancient times;
Roman-Dutch Law – The law that Jan van Riebeeck brought to the Cape in 1652;
and
English Law – English law started to influence Roman-Dutch law when the Cape
became a British colony in 1814.
When faced with a legal problem, the first source to consult is legislation or
statute law. The second source of law in a country where the law is not codified
(recorded in one piece of legislation that covers all the aspects of law in a
country) is custom. A customary law rule must meet four requirements to be
recognised as a legal rule:
• It must be reasonable;
• It must have existed for a long time;

3
• It must be generally recognised and observed by the community;
and
• It must be certain and clear.
The third important source of South African law is judgments of the courts.
Broadly speaking, this means that a court is bound by previous decisions on the
same legal questions (stare decisis rule).
Read pages 10–13 in your prescribed textbook to find out how this rule works in
practice and to learn more about how courts make law.
The Constitution of the Republic of South Africa Act. 1996 is the supreme law of
the country and any legal rule that is not in line with the Constitution is null and
void.
Read Bill of Rights in the Constitution of the Republic of South Africa, 1996.
1.2 Courts in South Africa
The South African Constitution makes provision for the following court system:
Table 1.1 Provision of the Constitution in the Court System
Superior Courts Lower Courts

1. Constitutional Court 1. Magistrates’ courts
2. Supreme Court of Appeal
3. High Court of South Africa (in the
different divisions)
Study pages 7–10 in the prescribed textbook. Pay specific attention to its
jurisdiction (type of matter that can be heard in that court).
1.3 Science of Law
The law is a system of rules which apply in a community.

A right is any right a legal subject has regarding a specific legal object and which
is protected by law. Examples are the ownership right you have to your
property, your right to physical integrity (not to be injured, for example),
the right an heir has to the property of a deceased person bequeathed to
him or her;

4
A legal subject is a human being or entity subject to the law, a member of the
legal community to whom the law applies and for whose benefit the law
exists. Legal subjects are all natural persons (people) and juristic persons
(companies, CCs, universities, municipalities);
A legal object is any entity, which can be the object of a legal subject’s claim to
a right. This could be your property, including your house, car, clothes,
food, pets; your intellectual creations, for example your artwork, a book
you have written, a design for a fashion show; your physical integrity, that
is your body; and
Legal capacity is the capacity to be the bearer of rights and duties.
Study pages 23–26 very carefully. You need to understand these concepts, as
they form the basis of any legal study.
We will now look in more detail what each of these categories entails. Read pages
26–44 in the prescribed textbook.
1.3.1 Categories of Law
Concentrate on the following:

The difference between public law and private law are the following:
Public law: Those legal rules, which control the relationships between the
state and its citizens.
Private law: Those legal rules, which govern the relationships between
citizens in their dealings with one another.
Public law consist of:

• International law;
• Constitutional law;
• Administrative law;
• Criminal law; and
• Law of procedure.
Private law consists of:

1. Law of persons – Deals with natural persons as legal subjects. It
determines:
• Who are legal subjects;
• How one becomes or ceases to be a legal subject;
• The various classes of legal subjects; and
• The legal position or status of each of the various classes of legal
subject.

5
2. Family law
Family law can be subdivided into:
• The law of husband and wife, for example requirements for a valid
marriage, dissolution of marriages and everything in between; and
• The law of parent and child.
3. Law of personality
This category deals with a natural person’s rights to their physical being
(body), their dignity and their reputation.
4. Patrimonial law
Patrimonial law can be subdivided into:
• Law of property – the relationship of persons towards material objects;
• Law of succession – what happens to the assets and liabilities of a
deceased person;
• Law of intellectual property – the protection of rights to immaterial
things that are of value to a person, for example inventions and
artworks; and
• Law of obligations – this has two broad subcategories:
o The law of contract; and
o The law of delict.
Self-Assessment Questions
After completing this topic, you should be able to answer the following self-
assessment questions:
1.1 What are the three most important sources of South African law?
1.2 What is the most important piece of legislation in South Africa, and why
is it so important?
1.3 Name three rights that are entrenched in Chapter 2 of the Constitution,
the Bill of Rights.
1.4 State in which court the following matters will be heard:
Facts Court
Mrs Johnson wants to divorce her husband.
Mr Shaik, a self-made millionaire, sells his Ferrari, worth
R3 million, to John, who gives him a bank-guaranteed
cheque as payment. John takes the Ferrari and leaves.
The cheque is dishonoured and try as he might, Mr Shaik
cannot get John to pay him the money.

6
Mr Pienaar has a contract with Brickwork Paving to page
his driveway for R12 000. When Brickwork asks for
payment of the R12 000, Mr Pienaar refuses and says
that the paving was not satisfactory.
In a matter before a full bench of the High Court between
X and Y, Y wins the case. X is unhappy and wants to
appeal.
1.5 Define the following:

• Law;
• Right (provide two examples);
• Legal subject (provide two examples);
• Legal object (provide two examples); and
• Legal capacity.
1.6 Fill in the missing categories of law in the classification of law below:
Classification of law
Public law
International Family
law law

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Topic 2
General Principles of the Law of Contract
Prescribed Reading
Before continuing with this topic, please read Section B: Chapters 3–12 in your
book.
2.1 Introduction

• Differentiate between contracts and other agreements.
• List the requirements for concluding a valid and enforceable
contract.
• Interpret contracts.
• Demonstrate an understanding of how a contract is breached, what
the remedies for a breach of contract are and how rights are
transferred and obligations terminated.
We will know that you understand the distinction between contracts and other
agreements, list the requirements for concluding a valid and enforceable
contract, know how contracts are interpreted and understand how a contract is
breached and what the remedies for a breach of contract are when you are able
to:
• Discuss the distinction between contracts and other agreements;
• Describe the requirements for the conclusion of a valid and
enforceable contract;
• Discuss the principles used in interpreting contracts;
• Identify the ways in which a contract can be breached and discuss
the remedies for breach of contract; and
• Explain the transfer of rights and termination of obligations.

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What is a contract?
A contract is an agreement concluded between two or more persons with the

serious intention of creating legally enforceable obligations and which meet the
requirements set by the law for the formation of a valid contract. From this it is
evident that:
• Not all agreements are contracts – a contract has to meet certain
requirements.
• A contract is concluded between two or more persons, natural or
juristic. However, a juristic person would need a natural person to
act on his behalf.
• A valid contract creates legally enforceable obligations; in other
words, it places a duty on the parties to perform and gives the
parties the right to insist on performance by the other party.
Requirements for a valid contract
An agreement must meet the following requirements to be regarded in law as a

valid contract:
• Consensus between the parties – they must agree on the objectives
of the contract;
• Capacity to act;
• Agreement must be legally possible – permitted by law;
• Agreement must be physically possible; and
• If formalities are prescribed, these must be observed.
For information on the freedom to contract and contracts concluded

electronically, read paragraphs 3.3 and 3.4 in your prescribed textbook.
2.2 Consensus
2.2.1 Background
Consensus is often described as:

• “Agreement by consent”
• “True agreement” or
• “Meeting of the minds”.
This implies that there is more to consensus than the fact that the parties have
to agree – the agreement must be a specific type of agreement.

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To determine whether the parties have reached consensus, the following
questions need to be asked:
• Does every party to the contract have the serious intention to be
contractually bound? Social agreements, such as a date for an
evening out, are not a legally binding contract.
• Do the parties have a common intention, i.e. do they have the same
commitment in mind?
• Did every party make his or her intention known to every other
party? The usual way is through offer and acceptance.
Offer and acceptance
The party who makes the offer is known as the offeror and the party to whom
the offer is made, is known as the offeree.
Requirements for a valid offer and acceptance
• Offer must be made with intention that offeror will be legally bound:
o By mere acceptance of offer by offeree; and
o By the offer exactly as it is.
• Offer must be complete;
• Offer and acceptance must be:
o Clear; and
o Certain.
• May be made:
o Expressly;
o In writing;
o Orally; and
o Tacitly by means of conduct.
There are some exceptions, e.g. where law lays down formalities for offer or
where offeror makes it clear that offer must be accepted in a specific manner;
Offer must be addressed to a specific person or an unknown person/s:
Table 2.1 Offers Address to a Specific or Unknown Person(s)
If the offer is addressed to… Then…

A specific person/persons. Only that person/those persons can accept it.
An unknown Anyone falling in that group can accept it.
person/persons.
Offer is completed once it has come to the knowledge of the offeree and
acceptance is completed, once it has come to the knowledge of the offer.

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When does the offer fall away?
Table 2.2 Offers Fall Away
If … Then the offer…

The offer is valid for a specific Falls away if not accepted within that
period only. period.
No time limit is set for acceptance. Falls away if not accepted within a
reasonable period.
The offeror informs the offeree Falls away.
before acceptance that the offer is
revoked.
The offeree rejects the offer. Falls away.
The offeree does not accept offer Falls away and is replaced by the
precisely as it has been made and counteroffer, which becomes the new
makes a counteroffer. offer – original offeror and offeree
change places.
The offeror or offeree dies before Falls away and no rights or duties pass
acceptance. to the estate of the deceased.
An offer has fallen away. Is no longer for acceptance – any
“acceptance” thereafter is in fact a
counteroffer.
When and where is the contract concluded?
As we have seen from the above, the general rule is that a contract is concluded
when the offeror gets notice of the acceptance of the offer, in other words, where
consensus is reached. To make it easier to determine the time and place in
different circumstances, there are some common law and statutory rules
applicable to different circumstances. These are:
Table 2.3 Common Law and Statutory Rules Applicable to Different

Circumstances
Theory When is it When is the Where is the Where did the

applicable? contract contract rule originate?
concluded? concluded?
The Where the When the At the place Common law.
information or parties are in acceptance is where the
ascertainment each other’s communicated. offeror learns
theory. presence when about the
the offer and acceptance.
acceptance are
made; or
where contracts
are concluded
over the
telephone; or

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where contracts
are concluded
by means of
telex, fax or the
internet and
there is a
conversational
situation similar
to a telephone
conversation.
The dispatch Where the When the letter At the place Common law.
theory. contract is of acceptance is where the letter
concluded by posted. is posted.
post.
The reception Where the When the offeror At the place Electronic
theory. contract is receives the where the Communication
concluded by acceptance of the offeror receives and
email. offer (when the acceptance of Transactions
complete enters a the offer. Act 25 of 2002.
computer or
network
designated or
used by the
offeror and can
be received and
processed by the
addressee – no
acknowledgement
of receipt is
necessary).
2.2.3 Consensus and Defects in Will
There are two possibilities:

1. If there is no consensus, there is, thus, no valid contract, then the
contract is void
Example: Mistake
2. If there is consensus, but it was obtained in an improper manner, there

is, thus, a valid contract, and then the contract is voidable by the party
who suffers the prejudice.
Example: Misrepresentation; duress; undue influence
1. Mistake
One or more parties to the contract “conclude” the contract but labour under a
misunderstanding regarding some aspect of the contract.

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Not all cases of misunderstanding make the contract void. The requirements are:
• The mistake must relate to a fact or a legal rule or principle;
• The fact or legal rule or principle must be material; and
• The mistake must be reasonable.
2. Improper obtaining of consensus
When there is consensus, no matter how it was obtained, a valid contract comes
into existence. However, the innocent party may choose to void it.
Consensus can be improperly obtained in three ways:

2.1 Misrepresentation – This is an untrue statement. For example, Zelda
tells Liz that her earrings are diamond earrings, knowing full well that she
bought them for R5 from a street vendor and that it is made of crystal.
The requirements for misrepresentation are:

• An untrue statement about an existing fact or condition (an express
statement or by means of conduct);
• Made by one contracting party (or his/her
representative/employee/person colluding with him/her) to the
other;
• Must be unlawful (contrary to the standard of the community’s idea
of acceptable conduct);
• Must have induced the contract (there must be a causal link
between the misrepresentation and the contract as it stands); and
• The party making the representation must be at fault.
Misrepresentation may be intentional, negligent or innocent (Table 2.4).
Table 2.4 Characteristics of Misrepresentation
Intentional Negligent Innocent

Party makes the Party makes the Party makes the
representation with the misrepresentation misrepresentation not
intent of inducing the negligently with intent intentionally or
contract. of inducing the contract. negligently, but still
with the intent of
inducing the contract.
The party knows that it The party thinks that it Party believes that the
is untrue or does not is the truth, but does statement is the truth
care whether it is true not take the steps a and has taken all steps
or untrue reasonable person a reasonable person
(recklessness). would have taken to would have taken and
establish the truth.

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still does not know that
the statement is untrue.
Innocent party may: Innocent party may: Innocent party may:
Uphold the contract; or Uphold the contract; or Uphold the contract; or
Rescind the contract; Rescind the contract; Rescind the contract.
and and
In both cases, claim In both cases, claim
damages on the basis of damages on the basis of
delict. delict.
2.2 Duress – Consensus is obtained from the innocent party by

threatening to hurt his children if he doesn’t sign the contract.
Definition: Duress is an unlawful threat of harm or injury made by a party to the

contract or someone acting on his or her behalf that causes the other party to
conclude a contract.
Requirements for duress:

• Actual physical violence or a reasonable fear of violence or damage;
• Threat must be of an imminent or inevitable evil;
• The threat of harm or violence must be unlawful;
• The duress must be exercised by one contracting party against the
other; and
• The threat must cause the threatened party to conclude the
contract.
Effects of duress:
• Consensus is reached;
• A contract comes into existence;
• The contract is voidable because consensus was obtained in an
improper manner;
• The innocent party may:
o Uphold the contract;
o Rescind the contract; and
o Claim damages on the basis of delict.
2.3 Undue influence – In the case of undue influence, there is usually a

special relationship between the parties with a “stronger” party and a
“weaker” party, for example: A nurse influences the old lady she is
caring for to sell all her valuable jewellery to her for R100.

14
Requirements for undue influence:
• The party who is guilty of undue influence must have some sort of
influence over the victim. There is usually a special relationship,
e.g. doctor and patient or guardian and minor;
• The party must have used his or her influence to weaken the
victim’s resistance; and
• The party must have used the influence unscrupulously to persuade
the victim to consent to a transaction he would not otherwise have
entered into and which is to his or her disadvantage.
Damages
In the paragraphs above, it is said that the victim may, in some cases, claim
damages:
• Purposes of damages on the basis of delict: Negative interest – to
put the party in the position he/she would have been, if no delict
had taken place.
• Purpose of damages on the basis of contract: Positive interest – to
put the party in the position he/she would have been if the contract
was duly performed.
2.3 Capacity to Perform Juristic Arts
Capacity to act is the second requirement for concluding a valid contract.
Capacity to act and legal capacity can be differentiated as follows (Table 2.5):
Table 2.5 Differentiation between Capacity to Act and Legal Capacity
Capacity to Act Legal Capacity

The capacity to perform juristic acts, to The ability to be the
participate in legal dealings and to conclude bearer of rights and
valid contracts. duties.
Only natural persons can have capacity to act, if Natural persons and
the juristic person wants to conclude a contract, juristic persons have legal
a natural person must act on its behalf. capacity.
Not everyone who has legal capacity has the Every legal subject has
capacity to act – it can be limited. To have the legal capacity.
capacity to act, the person must be able to:
Form and declare his or her will; and
Appreciate the consequences of the contract.

15
The following factors could affect a person’s capacity to act:
1. Age
To determine whether a person has the capacity to act, the law distinguishes
three age groups (Table 2.6):
Table 2.6 Different Age Groups Distinguished by Law
Age What is the Effect on contracts Notes/Exceptions

group person’s capacity
to act?
0–7 No capacity to Cannot conclude any If contract concluded by
years act. contract, even guardian was to minor’s
contracts that give detriment, minor may
the minor only rights apply for rescission of
and no liabilities. the contract within one
Guardian must act on year of reaching
minor’s behalf. majority.
Guardian must have
capacity to act.
May only act on
behalf of minor as
regards minor’s
estate and
maintenance.
7–18 Limited capacity Needs guardian’s Person 18+ may apply

years to act. assistance to for a High Court Order to
conclude most be declared a major.
contracts. If granted, will have full
capacity to act.
Assistance: If person marries before

Allowing and being the age of 18, he or she
present at becomes a major. If
conclusion; or marriage ends before
Subsequent age 18, the person will
ratification. remain a major.
Minor may conclude
contracts in terms of Tacit emancipation – if
which they get only guardian/s allows/allow
rights and no minor to be economically
liabilities on their independent and enjoy
own, without contractual freedom.
assistance. Emancipation may be full
or limited.

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18+ Person reaches Contracts fully valid.
the age of
majority
Full capacity to
act if otherwise
normal.
Read pages 74–80 to find out who can act as guardian for a minor.
What happens if the minor to concludes contracts without the guardian’s

assistance (Table 2.7)?
Table 2.7 Outcome If a Minor Concludes Contracts without Guardian’s

Assistance
If… Then the Contract…

The minor with limited capacity Will not necessarily be void.
concludes a contract without the
guardian’s assistance
The guardian ratifies the contract Will be binding.
before minor reaches majority; or
The minor ratifies the contract after
he/she obtained capacity to act.
The contract is not ratified as stated Is unenforceable against the minor,
above. before and after majority, but is
partially effective. Minor does not
incur liabilities but other party does.
The minor pretends to be a major in Will be valid and the minor will be
order to conclude the contract. liable.
2. Marriage
3. Mental deficiency
If a person’s mental condition is such that he/she cannot understand and
appreciate the nature or consequences of his/her conduct to be able to manage
a particular affair and make rational decisions, such person cannot form the
necessary will to conclude a contract has, therefore, no contractual capacity.
4. Influence of alcohol or drugs

If a person is in such a state of intoxication that he/she does not appreciate the
nature and consequences of his/her actions or cannot control his/her actions, the
person is incapable of forming a will and is, therefore, incapable to perform
juristic acts.

17
5. Prodigals
If a person tends to irresponsibly and extravagantly squander money, the person
cannot manage his/her own affairs competently and the person can be declared
a prodigal. A curator will then manage his/her affairs and the person will have
no contractual capacity.
6. Insolvency
An insolvent’s capacity to act is limited in that he/she may not conclude
agreements that may have a detrimental effect on the insolvent estate without
the permission of the curator.
2.4 Agreement Must Be Possible
In order for a valid contract to come into existence, the performance must be:
• Legally; and
• Physically possible.
Read chapter 6 in your prescribed textbook for a full explanation of legal and
physical possibility.
The contract must be legally possible
Table 2.8 Contracts Must Be Legally Possible
Legal Possibility – Contracts Can Be Contrary To:

Common law Statutory law
Contracts that Contracts Contracts contrary to
cannot be contrary to public policy
legally good morals.
executed.
Example: Example: These can be further Examples:
An Contracts divided into contracts: - Sale of
undertaking to that promote - Involving the weapons and
sell a river. sexual administration of ammunition;
misconduct. justice; and
- Involving crimes and - Sale of
delicts; unpolished
- Affecting the safety of diamonds
the state;
- Restraining a person’s
freedom to participate
in legal transactions;

18
- Restraining a person’s
freedom to participate
in trade; and
- Aimed at gambling.
What are the consequences of an illegal contract?
Activity 2.1
Read the following set of facts and answer the questions that follow.
Martin and James are students in jewellery design at a well-known South African
college. As all students, they do not have a lot of money, and they always need
more. Martin’s uncle owns the mineral rights on a piece of land in the Northwest
Province and diamonds have been found there. Martin’s uncle wants to help
Martin and tells Martin that he would sell them some unpolished diamonds, which
they could use in their creations, which they could then sell for a profit. In order
to buy the unpolished diamonds, they need cash and approach James’s sister,
who won the Lotto recently. They conclude a contract in terms of which she would
lend them R300 000. They agree on the terms of the loan agreement and she
gives them the R300 000. Concentrate on the contractual aspects and ignore any
possible criminal liability in this instance.
• Is the contract between Martin and James, and Martin’s uncle, a valid
contract? If not, is it void or voidable?
As soon as Martin and James receive the R300 000 from James’s sister, they pay
over the money to Martin’s uncle and he promises to deliver the diamonds within
10 days. Days and months pass, and they still haven’t received the diamonds.
As a result, they cannot manufacture the jewellery they promised their clients
and suffer a huge loss.
• Can they claim the diamonds from Martin’s uncle on the basis of the
contract?
• Can they claim damages from him on account of the loss they suffered?
• Can they claim back the money they paid Martin’s uncle on the basis of
unjustified enrichment?
Because they never received the diamonds, they cannot sell jewellery and cannot
pay James’s sister back.
• Can she sue them on the basis of the loan agreement between them?

19
Discussion of the above set of facts:
The contract between Martin and James and Martin’s uncle is not valid and is
completely void because it is illegal. They can therefore not claim performance
in terms of the contract. Martin and James can also not rely on the “contract: to
claim damages. The loan agreement is a separate but connected transaction.
Whether this contract is enforceable depends on whether in the court’s opinion,
the connected contract is causally connected to the unlawful contract. In this
instance it would be causally connected, as it is unlikely that James and Martin
would have been able to buy the diamonds without the loan from James’s sister.
Physical possibility and certainty of performance
The performance of rights and duties must be:

• Objectively possible at the time the contract is concluded; and
• Should be certain or ascertainable.
Meaning of the above:
• Objectively possible – i.e. it must be impossible for anyone to
perform the rights and duties, not only for the contract party;
• At the time of conclusion – if the performance becomes impossible
at a later stage, there is still a valid contract, and different rules
apply; AND
• Certain or ascertainable – performance must be either specified, for
example R200, or there must be guidelines in the contract as to
how they will determine what the performance is, for example an
amount equal to US$500 on 10 May 2007.
2.5 Formalities
2.5.1 Introduction
A formality is a requirement relating to the outward, visible form in which the

agreement must be cast to create a visible contract. Formalities may be
stipulated by law or by agreement between the parties. Read chapter 7 in your
prescribed textbook for a full explanation formalities.
Contracts where formalities are required
In the following instances, legislation requires compliance with formalities for the
conclusion of a contract:
Table 2.9 Contracts Require Formalities

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Contract Formalities Effect of non-
compliance
Alienation of land. - In writing - Invalid unless both
- Signed by: parties have performed
o The parties; or fully and land has been
o Their agents upon transferred to new
written instruction owner.
Suretyship. - In writing; and - Invalid.
- Signed by or on behalf
of the surety.
Donations where - In writing; - Invalid.
performance is due in - Signed by:
future. o Donor; or
o His/her
representative.
o Acting on his/her
written authority;
and
o Granted in
presence of two
witnesses.
Consumer credit - In writing; and - Valid
agreements. - Signed by or on behalf - Parties to agreement
of all parties will be guilty of an
offence.
Antenuptial contract. - Registered in terms of - Valid between
the Deeds Registries spouses.
Act. - Invalid against third
parties.
Formalities required by parties
Are the following agreements valid contracts?

• John and Jane conclude a contract of sale in terms of which John will buy
Jane’s car. They agree that they will conclude the contract in writing,
because then they will know what they agreed on, should something go
wrong in the future. They agree orally and all the other requirements for
a valid contract are met. This is already a valid contract since the only
reason they want to reduce the contract to writing is for purposes of proof;
and
• Pete wants to sell his car. He puts an advertisement on the notice board
at work offering his car for sale for R20 000. In the advertisement, he
states that acceptance of the offer must be in writing. Paul runs into Pete
and tells him that he would like to buy his car for R20 000. In this case,
the offer must be accepted in writing, otherwise there is no valid contract.

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Electronic transactions
Data messages are recognised as writing, if the document or information can be

accessed for future use. Page 93 in the prescribed textbook contains a list of
transactions that cannot be concluded by electronic means.
An advanced electronic signature is a signature that results from an accredited

process allowing the recipient, as well as the third-party certification authority,
to verify the identity of the “signatory” and that the communication has not been
changed.
2.6 Terms of Contract
2.6.1 Term
(Read chapter 8 of your prescribed textbook).
A contractual term is a provision which:

• Imposes one or more contractual obligations on a contracting party
to:
• Act in a specific manner;
• Refrain from performing a specific act; or
• Qualifies the contractual obligations.
In other words, a term:
• Defines the contractual obligations to which the parties bind
themselves and which can be enforced against one another; and
• Stipulates the time or circumstances when the obligations become
enforceable or are terminated.
Table 2.10a Classification of Terms
Express Tacit Implied

- Clearly expressed - Not expressed in words. - Not expressed in
in words. - Based on parties’ true or words.
- In writing or imputed (assumed) - Incorporated by
orally. intention (imputed by operation of law.
- E.g., I will buy law). - Consequence of a
your green - If parties regarded the particular type of
Renault for R40 term as self-evident or if contract.
000. they overlooked the - E.g. in a contract of
possibility. sale, an implied
- Can also include terms term is the
usually guarantee against
included/observed in a latent defects.
specific trade (terms - Also called naturalia.

22
arising from trade - Also trade usages –
usages). then difficult to
- E.g. if a car is sold, it is distinguish from
an imputed term that the tacit term.
car will have four
wheels.
Terms can also be classified as:
Table 2.10b Classification of Terms
Essentialia Naturalia Incidentalia

Terms that’s essential i.e. Terms attached by law to Special requirements
to be able to classify the all contracts in a certain and additional terms
contract as a certain type class. the parties want to
of contract. insert.
E.g. in a contract of lease Determine rights and E.g., buyer is allowed

one of the essentialia is duties of parties and two weeks to pay for
an undertaking by the consequences of contract. the article bought.
lessor to give the lessee
the use and enjoyment of E.g., guarantee against
a thing. latent defects in contract
of sale.
If a lease does not Can be excluded by
include this essentiale, it parties by mutual
will not be a lease. agreement.
2.6.2 Condition
Introduction
A condition is a term that causes the operation and consequences of the contract
to depend on the occurrence or non-occurrence of a specified uncertain future
event.
A condition can be suspensive or resolutive.
Suspensive condition
A contract containing a suspensive condition is dealt with as follows:

• A valid contract arises immediately upon conclusion and the parties
obtain all the rights and duties in terms of the contract; and
• The operation of rights and duties is suspended (postponed) until
the fulfilment of the condition.

23
Table 2.11 Suspensive Condition
If… Then…
The uncertain future event takes The condition is fulfilled; and
place. All contractual obligations become
operative, in other words they can go
on with the contract.
The uncertain future event does not The condition is not fulfilled; and
take place. The contract terminates.
2.6.3 Resolutive Condition
A contract containing a resolutive condition is dealt with as follows:

• A valid contract arises immediately upon conclusion and the parties
obtain all rights and duties in terms of the contract; and
• The rights and duties are operative immediately, so they can
immediately be enforced.
Table 2.12 Resolutive Condition
If… Then…
The uncertain future event takes The condition is fulfilled; and
place. The contract is dissolved and the
rights and duties end.
The uncertain future event does not The condition is not fulfilled; and
take place. The contract remains valid and rights
and duties can continue to be
enforced.
The parties have already performed The parties have to return whatever
when the condition is fulfilled. they received in terms of the
contract.
However, the duties in terms of the The parties do not have to return
contract are continuous. what they received, e.g. a lease.
Table 2.13 Contractual Definitions
Term Definition
Time clause Where contractual obligations become operational/are
terminated upon the reaching of a certain and determined or
ascertainable time, which the parties have agreed on.
Supposition A contractual term that causes the existence of the contract
to depend on:
An event which has taken place in the past; or
A state of affairs, that existed or exists, when the contract is
concluded.
Warranty A contractual term in terms of which a party accepts
absolute responsibility for proper performance related to, for

24
example, the absence of defects in or quality or standard of
the product or service.
Modus A contractual term that burdens a party’s right to
performance in terms of the contract, e.g. to compel the
party to perform towards a third party, or to do or not do
something.
Cancellation A term that entitles a party to cancel the contract summarily
clause if the other party breaches the contract.
Penalty A remedy the parties include to penalise a party who
clause breaches the contract to deter him or her from breaching the
contract, e.g. by paying a sum of money.
Forfeiture A term providing that a party who breaches the contract will
clause forfeit his or her right to restitution of performance already
delivered.
Rouwgeld A clause providing that a party may withdraw from the
clause contract upon payment of a sum of money – this money is
called the Rouwgeld. The Rouwgeld often consists of a
deposit paid at the start of the contract.
Entrenchment A term that provides that any amendments to the contract
clause must be reduced to writing.
Please read pages 100–115 in the prescribed textbook for more information on
the above terms.
2.7 Interpretation of the Contract
2.7.1 Content of the Contract
Read pages 117-118 in your prescribed textbook that deals with the content of
contracts and where to find it.
Pay specific attention to the content of “ticket cases” and “click-wrapped”

agreements concluded via the Internet.
Interpreting the contract
The main objective of interpreting a contract is to ascertain the true intention of

the parties.
How does the court go about interpreting a contract?

25
The court refers to the following guidelines to determine the true intention of the
parties:
• The court assumes that the parties used words in their ordinary
grammatical meaning, so the court first determines what the
normal grammatical meanings are of the words used in the
contract;
• After ascertaining the ordinary grammatical meaning, the court
looks at:
• The context in which the words were used;
• The contract as a whole; and
• The surrounding circumstances.
• If there is uncertainty about the meaning of a word, the court might
interpret it against the person who drafted the contract;
• The court uses presumptions, e.g.:
• The parties meant to conclude a valid and enforceable agreement;
and
• The parties did not intend to change the rules of the common law.
• In the case of a written contract, the court uses the parole evidence
rule.
2.7.2 Parole Evidence (Integration) Rule
The parole evidence rule is only applicable to written contracts. The rule states
that if a contract is in writing, that document will be the only evidence of the
content of the contract, i.e. the contracting party may not refer to previous
agreements that are not reflected in the contract.
The parole evidence rule is not applicable in the following instances:

• To any agreement concluded subsequent to the contract in
question;
• It does not prohibit evidence of prior inducing agreement where the
terms of the earlier document do not contradict, alter, add to or
vary the terms of the written contract:
o Evidence to prove that the contract is null and void is not
prohibited; and
o Objectively determinable facts recorded in the document are not
subject to the rule.
2.7.3 Rectification
Rectification becomes applicable if there is an error in the contract and this does
not reflect the true intention of the parties.

26
For example, the contract states the purchase price of a house as R4 000 instead
of R400 000. The contract can be rectified to reflect the true intention.
2.8 Breach of Contract
Read chapter 10 in your prescribed textbook.
How can a contract be breached?

• Default by the debtor (mora debitoris);
• Default by the creditor (mora creditoris);
• Positive malperformance;
• Repudiation; and
• Prevention of performance.
Table 2.14 Breach of Contract
Mora Debitoris
Definition Requirements Consequences
- The debtor does not - Performance must be - Remedies for breach
perform at the agreed delayed and it must of contract.
time. still be possible to - Effect on liability of
- The delay is due to the perform at a later debtor if performance
debtor’s fault. stage. becomes impossible
- The performance must after date he/she
already be claimable. should have
performed.
Mora Creditoris
- The creditor causes - Performance must be - Remedies for breach
the delay of the dischargeable – i.e. of contract.
debtor’s performance there must be a duty - Debtor’s duty of care
where the creditor’s to perform in terms diminishes –
needs to co-operate of a valid and becomes responsible
to enable the debtor existing contract and only for losses
to perform. performance must be caused intentionally
legally and physically and through gross
possible. negligence – if
- The debtor must performance
tender performance. becomes impossible
- The creditor must fail due to other reasons,
to co-operate and the the debtor is released
failure must cause from his/her duty but
performance to be the creditor is still
delayed. liable for
- performance.

27
- Debtor remains
entitled to
performance by
creditor.
- Mora creditoris
cancels mora
debitoris.
Positive Malperformance
The debtor tenders Remedies for breach of
defective or incomplete contract.
performance or
commits an act which is
contrary to the terms of
the contract.
Repudiation
Behaviour by a party Test is objective – a Remedies for breach of
indicating that he/she reasonable person in contract.
might not meet his/her the place of the creditor
contractual obligations. should conclude that
the repudiating party
has no intention of
meeting his/her
contractual obligations.
Prevention of Performance
The debtor makes Performance must be If the debtor made
his/her own made completely his/her own
performance impossible impossible and it will performance impossible,
or the creditor makes never again be possible he/she must pay
the debtor’s to perform. damages because
performance performance is no
impossible. There must be longer possible.
culpability on the part of
the party who made the If the creditor made the
performance impossible. debtor’s performance
impossible, the debtor
will be deemed to have
performed, but is still
entitled to the creditor’s
performance, less any
amount saved because
he/she need no longer
perform.

28
The difference between mora ex re and mora ex persona in the case of mora
creditoris is:
• Mora ex re: If a specific date has been set for the debtor’s
performance and consequently the creditor’s co-operation and the
creditor does not co-operate – mora is automatic; and
• Mora ex persona: Where there is no specific date set for
performance and co-operation – the debtor must then fix a date
and inform the creditor.
If the creditor then fails to co-operate, this would amount to mora
ex persona. Therefore, mora is not automatic, but depends on the
debtor’s fixing a date and informing the creditor.
2.9 Remedies for Breach of Contract
2.9.1 Introduction
The three main remedies for breach of contract are:

• Execution of the contract;
• Cancellation of the contract; and
• In both instances, damages, if applicable.
Execution of the contract
The court can make the following possible orders, if the innocent party claims
execution of the contract as a remedy:
• Order specific performance;
• Order reduced performance; and
• Grant a prohibitory interdict.
Specific performance
Specific performance means that the court orders the defendant to perform
exactly as was undertaken in the contract.
This order cannot be made:

• Against a person whose estate has been sequestrated; or
• If performance is no longer possible.

29
Reduced performance
Case study:
Mrs Mahlangu orders 200 rose bushes from the Red Rose Farm for an amount of
R10 000. Upon delivery of the roses, the nurseryman informs Mrs Mahlangu that
the specific type of rose she ordered is no longer planted and that he had only
150 available. They unload the 150 and Mrs Mahlangu proceeds to plant them.
However, she refuses to pay the R10 000 and Red Rose Farm institutes action
against her. Mrs Mahlangu raises the defence that Red Rose Farm has not
performed properly.
However, the court orders her to pay a reduced amount, i.e. R7 500 for the roses
she has received and planted. This is called reduced performance.
Requirements for reduced performance – The plaintiff must prove:

• That the defendant is using the defective performance;
• That it would be fair for the court to grant an order for reduced
performance; and
• The reduced contract price.
Prohibitory interdicts
The court grants these interdicts to compel a party to act in accordance with the
contract between the contractual parties.
2.9.2 Cancellation
Cancellation will be ordered in the following instances:
Table 2.15 Breach and Cancellation of Contract
Type of Breach Circumstances where the court will order cancellation

Mora - If the contract determines a specific date for
debitoris/creditoris. performance and there is a tacit term that time is
of the essence.
- If the creditor/debtor sends the debtor/creditor a
notice of intention to cancel – in this way the
creditor/debtor obtains a right to cancel the
contract.
- If the contract contains a cancellation clause.
Positive - If the breach of contract is material.
malperformance. - If the contract contains a cancellation clause.

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Repudiation. - If a material obligation of the contract is
repudiated.
- If the contract contains a cancellation clause.
Prevention of - By debtor – entitles creditor to cancellation.
performance. - By creditor – debtor is deemed to have performed
and is still entitled to performance by creditor or
claim cancellation.
Read pages 134–138 in your prescribed textbook to find out how to cancel a
contract and what the consequences of cancellation are.
2.9.3 Damages
The aim of damages in the event of breach of a contract is to place the “innocent”
party in the position he would have been if the contract had not been breached
– this is called positive interest.
Damages may be claimed regardless of whether the contract is executed or

cancelled.
Requirements
In order to successfully claim damages, the plaintiff must prove that:

• He has suffered patrimonial loss;
• The breach of contract caused the loss; and
• The loss was foreseeable.
The plaintiff must also prove that he has mitigated (limited) his damage by taking
reasonable care.
2.10 Transfer and Termination of Personal Rights
2.10.1 Transfer of Rights

(Read chapter 12 of your prescribed textbook).
Personal right: A right to claim performance by the other party to a contract.

Cession: The transfer of a right by agreement.
Cedent: The person who transfers a right.
Cessionary: The person to whom the right is transferred.
Personal rights can be transferred by means of cession.

31
The consequences of cession are:
• The right forms part of the estate of the cessionary and it no longer
belongs to the cedent;
• Only the cessionary can enforce performance;
• The cedent can cede the right only once – the cessionary can cede
it further;
• The debtor cannot render performance to the cedent. He/she must
perform to the cessionary;
• The entire claim, with all benefits such as security, is transferred.
If the cedent held security for performance, the cessionary will now
hold the security; and
• The claim is also transferred with all disadvantages – in other
words, if the cessionary institutes an action to claim performance,
the defendant can raise any defence that he/she could have raised
if the cedent was still the holder of the right.
Termination of obligations
Obligations can come to an end in several ways (Table 2.16). These are:
Table 2.16 Termination of Obligations
Discharge. Rescission and cancellation.

Agreement. Merger.
- Release. Set-off.
- Novation. Impossibility of performance after
- Delegation. conclusion of contract.
- Settlement. Prescription.
Sequestration and rehabilitation.
After completing this topic you should be able to answer the following self-
2.1 What would you say is the definition of a contract? Are all agreements
contracts?
2.2 Who may conclude a contract? Is it, for example, possible for a
municipality to conclude a contract?
2.3 What is the effect of a valid contract?

32
2.4 Maggie’s husband, Joe, works in Johannesburg. His employer transfers
him to Cape Town. He goes to Cape Town without Maggie to conclude the
employment contract and look at some houses. He sees one, which he
thinks Maggie would like, but is not sure. What can he do to ensure that
the house is still available when Maggie visits Cape Town in two weeks’
time?
2.5 Can the following be regarded as true offers? If not, state what must be
done before there will be an offer on the table:
• Maggie tells her friend Mary that she wants to sell her bicycle for
R500.
• While driving with her friend Mary, Maggie’s car starts giving
problems. Maggie, desperate because they have already spent
thousands on the car, says, “I’ll pay you to take this car, Mary!”
• Maggie unpacks her basket full of groceries on the till at the
supermarket.
• At an auction subject to reservation, the auctioneer opens the
auction and invites those present to start bidding.
• At an auction not subject to reservation, the auctioneer opens the
auction and invites those present to start bidding.
• Mr B, a shopkeeper, puts up an advertisement in the window stating
“Pears – only R15,00 a box”.
2.6 Study the Following Examples and State Whether the Mistake or
Misunderstanding Will Cause the Contract to Be Void
• Martin intends to go on holiday at the Kruger Park and cannot find
his binoculars. He thinks that his ex-wife took them when she left
him and that he is unlikely to get it back, so he buys a new one. On
his return from the Kruger Park, he finds the binoculars in the
bathroom cabinet where he hid it from his ex-wife. Is the contract
for the sale of the new binoculars void?
• Zelda wants to sell her diamond earrings for a R1 000 and tells her
friend Liz. Liz remembers Zelda wearing diamond earrings to a party
earlier this year and tells Zelda that she would buy them. She
immediately writes out a cheque. When Zelda brings her the
earrings, she sees that they are not the earrings she had in mind. Is
there a valid contract?
• Similarly, Zelda tells her friend Liz that she wants to sell her earrings,
which are made of crystal. Liz thinks that they are diamond earrings
and says that she would buy them. When she took them to the
jeweller for a valuation, the jeweller informs her that they are made
from crystal.

33
• Zelda tells Liz that she wants to sell her earrings, which Liz think are
diamond earrings, for R10 because she does not like them. Zelda
pays her R10 and is subsequently informed by the jeweller that they
are costume jewellery and are not worth much. Was this a mistake
that would render the contract void?
• Zelda’s husband, Mike, buys a house and is granted a mortgage by
the bank. The bank asks Zelda to sign as surety for the repayment
of the loan. Without reading the contract, Zelda signs. Five years
later, the bank sues Zelda for a loan Mike took out with them several
years before buying the house, and alleges that signed surety for all
Mike’s debts with them. Zelda said that when she signed the
suretyship, she did not realise that she was to be surety for all Mike’s
debts. Will Zelda succeed with her defence of mistake?
2.7 Define duress.
• Give the five requirements for duress.
• What is the most important difference between duress /
misrepresentation and undue influence?
• Looking at the different forms of misrepresentation and duress, what
would you say are the effects of undue influence?
2.8 What the purpose of damages:
• When damages are claimed on the basis of delict; and
• When damages are claimed on the basis of contract.
2.9 Name six factors that may affect the capacity to act.
2.10 Mr and Mrs Blignaut were married in 1975 in community of property. They
did not apply to have their marital regime changed when the Matrimonial
Property Act 88 of 1984 came into effect. In November 1993, Mrs Blignaut
bought a car in terms of a hire purchase agreement from Sakkie’s Motors.
In January 1994, she decided that she no longer wanted the car. Can she
return the car on the grounds that there was no valid contract between
her and Sakkie’s Motors?
2.11 Mr and Mrs Langa got married in December 2006. They did not agree to
any marital regime beforehand and did not see an attorney. They want to
know what the effect of the marriage is on their respective estates and
what they must do when they want to conclude a contract.
2.12 Discuss the marriage out of community of property concluded after 1
December 1984.
2.13 State four other conditions that have an effect on a person’s capacity to
act and briefly describe the effect of each. (For this purpose, you can refer
to pages 79–81 of your textbook.)
2.14 What is the effect of:
• Formalities laid down by law; and
• Formalities stipulated by one, both or all the contracting parties?

34
2.15 As a general rule, no formalities are required for the conclusion of
contracts. Give one example of a contract that arises through mere
contract.
2.16 When will a data message (e.g. an email) be accepted as writing if an
agreement is required to be in writing?
2.17 What contracts/legal documents cannot be validly concluded or drafted by
email? Name four.
2.18 What is an advanced electronic signature in terms of the ECT Act?
2.19 As you have seen in your prescribed textbook, a ticket, for example a bus
ticket, is also regarded as a contract. The courts use a special set of rules
to interpret these contracts. What does the court regard as acceptance of
the offer embodied in a ticket?
2.20 When will the debtor be in default:
• Where there is a specific date for performance?
• Where there is no specific date for performance?
2.21 What is the difference between mora ex re and mora ex persona in the
case of mora creditoris?
2.22 What form of breach is described by the following:
• Mrs Molome requests XYZ Carpet Cleaners to clean her sitting-room
carpet. They arrive on the appointed day and wash the carpet.
However, while washing the carpet, they use so much water and
absolutely drench the carpet. As a result, the carpet doesn’t dry in
time and eventually has to be replaced.
• X and Y concludes a contract for the sale of X’s car. They agree that
Y will pay X and that X will hand the car to Y a month later, on 17
March 2007. Before that date, X phones Y and informs him that he
has had a better offer and that Y can no longer buy the car.
2.23 What type of breach is described here?
2.24 Is Y obliged to wait until 17 March 2007 before taking action against X
due to breach of contract?
2.25 Mr and Mrs Moses accept a quotation from Brandnew Kitchens to install a
new kitchen for R40 000. Mrs Moses bakes for a home industry and cannot
afford to be without a kitchen for long. They arrange for instalment from
10 April to 14 April and promise Mrs Moses that the kitchen would be
finished on 14 April. Mrs Moses has a large order of snacks for a party on
16 April. The contract does not contain a cancellation clause.
Brandnew Kitchens does not arrive on 10 April. They inform Mrs Moses
that the factory has not yet delivered the units and promise to start
instalment on 11 April. But they do never arrive and on 14 April they
advise Mrs Moses that they would be there first thing on 15 April. As a
result, Mrs Moses is unable to deliver her order and her clients also cancel
two further orders for May and June.

35
Mrs Moses’ profit for each order would have been R10 000. Half of the
ingredients Mrs Moses bought for the first order also go bad and she loses
another R1 000. What are Mrs Moses’ remedies?
2.26 How would damages be calculated in the following instances?
• Mrs Moses eventually gets a new kitchen and orders eggs and milk
from her regular supplier. The supplier fails to deliver the goods.
• Joseph buys Frank’s car for R40 000. The contract does not set a
date for delivery of the vehicle or payment. Frank delivers the car to
Joseph and waits for payment. What must Frank do to claim his
positive interest?
• Mrs Moses gets Bathroom Bliss to install a new bathroom. Six months
later, the bath cracks. Bathroom Bliss is not interested in the problem
and she gets Baths and Basins to repair the bath.
2.27 Name the way in which the obligations are terminated in the following
cases:
• Sipho buys Thandi’s bicycle for R100 and Thandi immediately hands
him the bicycle. A week later, Thandi tells Sipho that he no longer
has to pay her the R100.
• Sipho buys Thandi’s bicycle for R100 and Thandi immediately hands
him the bicycle. When Sipho wants to pay her the R100, Thandi
alleges that he owes her R110. Sipho denies this. Together, they
decide that Sipho would pay R105 and that that would be the end of
the matter.
• Jackie lends Michaela R1 000. A month later and before paying back
the R1 000, Jackie buys Michaela’s watch for R1 000.
• Jackie lends Michaela R1 000. Both Jackie and Michaela forget about
the loan. Four years later, Jackie wants to claim back her money.
• Sipho buys Thandi’s bicycle. On her way to deliver the bicycle to
Sipho, Thandi is involved in an accident with the bicycle and the
bicycle is destroyed.

36
Topic 3
The Contract of Sale
Prescribed Reading
Before continuing with this topic, please read Section C: Chapter 13 in your
book.
3.1 Introduction

• Discuss the contract of sale in the South African law in terms of its
essential elements, the rights and duties of the buyer and seller and
the passing of the risk.
We will know that you are able to discuss the contract of sale in the South African
law in terms of its essential elements, the rights and duties of the buyer and
seller and the passing of the risk when you are able to:
• Define the contract of sale;
• List the essential elements of a contract of sale;
• Give the requirements for the merx and the purchase price;
• Discuss the rights and duties of the parties to the contract of sale;
and
• Determine when a contract of sale becomes perfecta and when the
risk in the merx passes.
A contract of sale is a contract in which one party (the seller) undertakes to

deliver the merx to the other party (the buyer/purchaser) and the purchaser in
exchange for this, agrees to pay the seller a certain sum of money (the purchase
price).
The essentialia of a contract of sale is that the parties must agree on the merx
and the purchase price.

37
The requirements for the merx and purchase price are the following:
• The merx must be definite or ascertainable, i.e. it must be
mentioned by name, e.g. “The pony, Blackie”, or “Erf 345,
Rietfontein” or in the case of a generic sale the number, weight or
measure must be mentioned with the thing, e.g. “20 tons of maize”,
“1 000 head of cattle”; and
• The purchase price must be definite or ascertainable, i.e. a specific
price (R20,00) or a price per unit, e.g. “10 tons of maize at R500,00
per ton”. The price may also be determined by a third party, but
not by the parties themselves.
3.2 Rights and Duties of Buyer and Seller
In chapter 1, it was said that the essentialia of a contract could not be excluded
by the parties (the parties cannot conclude a contract of sale and not deliver the
merx or pay the purchase price). However, the naturalia can be amended or
excluded (e.g. you can exclude the warranty against latent defects).
The common-law rights of the buyer and corresponding duties of the seller are
the following (Table 3.1):
Table 3.1 The Common-Law Rights of the Buyer and Corresponding

Duties of the Seller
Buyer’s Seller’s duty Notes Example/Remedies

rights
Delivery of To make the Forms of delivery:
the merx. merx available movables.
to the
purchaser.
Actual delivery: Actual: groceries
physically handing handed to woman at
over the merx grocery store.
Symbolic delivery: Symbolic: Keys of car
Something else handed to buyer so
delivered to buyer to that he/she can drive
give him/her control the car.
over merx.
Delivery with long Long hand: Cattle not
hand: Pointing out of physically moved, but
merx. pointed out to buyer.
Delivery with short Short hand: Buyer
hand: Merx already in rented bicycle and
possession of buyer. then buys it – already

38
in possession of
buyer.
Constitutum Constitutum
possessorium: Seller possessorium: Seller
remains in possession remains in
of merx, but possession, e.g. sells
ownership passes to bicycle to X but then
buyer. rents it from X.
Delivery: immovables
– by means of
registration in Deeds
Office.
Preservation May not If buyer does not co-
of merx destroy merx operate to receive
pending due to delivery, seller will
delivery. negligence or only be liable if merx
intent. is destroyed by gross
negligence or intent.
Protection Seller must X sells his watch to Y.
by seller assist buyer if Z approaches Y and
against someone with tells him that the
eviction. a stronger watch was stolen
title (i.e. from him and that he
someone who is the real owner of
alleges that the watch. X must
he/she is the then help Y to prove
real owner) that the watch was
tries to claim not stolen from Z.
the merx.
Merx free Must deliver Requirements to Remedies (aedilitian
from latent merx free prove that merx actions):
defects. from latent contained latent Actio redhibitoria;
defects, even defect: Action quanti minoris;
if he/she was Defect must be and
unaware of material; Merx can also be sold
the defect. Defect must have “as is”/”voetstoots” –
been present at time warranty is then
of sale; excluded.
Defect was latent –
buyer unable to
notice defect upon
inspection; and
Buyer unaware of
defect at time of sale.
Read more about remedies on pages 159-165 of the prescribed textbook.

39
3.3 Transfer of Ownership
The aim of the contract of sale is ultimately that the ownership of the merx is
transferred from the seller to the buyer.
Four requirements have to be met before ownership will pass to the buyer:
• The merx must be delivered to the buyer.
• The seller and the buyer must have the intention that ownership be
transferred.
• The seller must be the owner of the merx.
• The purchase price must be paid (or that the seller has extended
credit to the buyer or that the buyer has given security for
payment).
3.4 Passing of Risk
Case study:
Rosina buys Simon’s Toyota Tazz. Before the car is handed to her, Simon’s
garage roof collapses and the car is destroyed. Who will suffer the damages,
Rosina or Simon?
The person who suffers the damages will be the party who carried the risk of
accidental loss or damage to the merx. The risk can pass to the buyer even
before transfer of ownership, as long as the contract has become perfecta.
The following must happen before the contract will be perfecta:

The merx must be definite or identified – not merely ascertainable;
If Then
The buyer can still choose the exact The contract is not yet perfecta.
item.
It is a generic sale. The contract becomes perfecta once
individualisation has taken place.
Purchase price must be ascertained or ascertainable through simple calculation.

If the price is payable per unit, the number of the merx must already be
determined. E.g. if John buys horses from Joseph at R10 000 a horse and the
horses have not been counted, the contract is not yet perfecta; and
Any suspensive conditions must have been fulfilled.

40
Read pages 166–173 in your prescribed textbook to find out more about how
buyers in South Africa are protected by legislation.
3.1 Read the following case studies and discuss whether ownership in the
merx has passed to the buyer. If not, explain what must be done in order
to transfer ownership.
• Sally receives a watch as a present from her boyfriend, who bought
it from a vendor in the parking area of a large shopping centre. She
is not aware that it is a stolen watch. When the relationship ends,
she sells the watch to Maria. She hands it to Maria and Maria pays
the purchase price;
• Nonlinear has a lot of money and buys a house from Mr Makgabo
cash. She transfers the money to his account and he hands her the
keys to the house; and
• Maggie wants a dog. She contacts the breeder, Mrs Epol, who informs
her that she has puppies that will be able to leave their mother in six
weeks’ time. Maggie visits Mrs Epol and falls in love with a puppy.
Because she does not want to run the risk of not getting that puppy,
she immediately pays Mrs Epol the purchase price and they agree
that she would fetch the puppy in six weeks.
3.2 Who will bear the risk in the following cases:
• Mr X buys a car from Mrs Y, on condition that he sells his own car
within five days; and
• Farmer Brown buys 1 000 chickens from Farmer Morris. He visits
farmer Morris and farmer Morris shows him the 1 000 chickens.
Farmer Brown agrees to pick them up in a week’s time.

41
Topic 4
The Contract of Lease
Prescribed Reading
book.
4.1 Introduction

• Discuss the lease in the South African law in terms of its essential
elements, the rights and duties of the lessor and lessee and the
termination of the lease.
We will know that you are able to discuss the lease in the South African law in
terms of its essential elements, the rights and duties of the lessor and lessee and
the termination of the lease when you are able to:
• Define the contract of lease;
• List the essential elements of a contract of lease;
• Discuss the rights and duties of the lessor and the lessee; and
• List the ways in which the contract of lease can be terminated.
A lease of a thing is a reciprocal contract in terms of which one party

(lessor/landlord) undertakes to make temporarily available, to another party
(lessee/tenant), the use and enjoyment of a thing wholly or in part, in return for
the payment of a sum of money or a share in the fruits of the property.
The three essentialia of a lease are:

• An undertaking by the lessor to give the lessee the use and
enjoyment of a thing;
• An agreement between the parties that the use and enjoyment will
be temporary; and
• An undertaking to pay rent (either a sum of money or a share in
the fruits).

42
For more information about the essentialia, read pages 171–172 in your
prescribed textbook.
There are no formalities for conclusion of a lease, except in terms of legislation

(page 177 of the prescribed textbook).
4.2 Rights and Duties of the Parties
The duties of the lessor and the lessee are the following:
Lessor’s Duties
• To deliver the leased property to the lessee;
• To maintain the leased property; and
• To ensure the undisturbed use and enjoyment by the lessee.
Lessee’s Duties
• To pay rent;
• To use the leased property in a proper manner and take proper care
of it; and
• To return the property undamaged when the lease ends.
For other rights and remedies of the lessor and lessee, consult pages 178–189
in your prescribed textbook.
4.3 Termination of a Lease
Table 4.1 Termination of a Lease
If… Then… Notes

The lease is for a It ends when the
specific period. period expires.
The lease is an Either the lessor or If the contract does not
indefinite contract lessee can give prescribe the notice period,
and rent is payable notice of reasonable notice must be
with regular intervals. termination. given.
The lessor no longer The lease is not The parties can provide
has a title to the automatically otherwise in the contract.
property. terminated.
The lessor or lessee The lease is not The contract will be terminated
dies. automatically on either party’s death if this is
terminated. provided in the contract or if
the lease was at the will of the
deceased party.

43
When a lease is terminated, what will happen to improvements effected by the
lessee? Improvements may be:
• Useful;
• Luxurious; or
• Necessary.
The contract should state what rights the lessee has to remove the
improvements. If the contract does not contain provisions on this, the lessee
may remove luxurious or useful improvements if the property is not a worse
condition than when it was received. The lessee must do it before the lease is
terminated; afterwards, everything will belong to the lessor.
The lessor can also choose to keep the improvements and pay the lessee the
value of improvements if the lessee had removed them.
4.4 Statutory Protection of Tenants
Read pages 191–195 in your prescribed textbook.
4.1 What are the duties of the lessor?
4.2 What are the duties of the lessee?
4.3 Natalie enters into a contract to rent Thandi’s flat and has to pay rent of
R2 000 per month. Rent is payable on or before the 7th of each month.
After six months, Natalie falls into arrears. What remedy does Thandi have
and how does it work?
4.4 Natalie pays the arrears and from then on pays regularly. Thandi,
however, has decided that she has had enough and decides to sell the
flat. She sells it to Karabu, who wants to live in the flat. Natalie, however,
does not want to move.
Who has the stronger right to live in the flat, Natalie or Karabu? Motivate
your answer.
If the government decides to expropriate the property where the flat is
situated, would your answer be the same?
Karabu wants to continue renting the flat to Natalie, but Natalie no longer
wants to live there. Can Karabu force Natalie to keep on renting the flat?

44
Topic 5
The Contract of Insurance
Prescribed Reading
book.
5.1 Introduction

• Discuss the contract of insurance in South African law.
• Differentiate between indemnity and no indemnity insurance, the
essentialia of the contract of insurance, the duty of good faith, and
other parties to the insurance contract and statutory provisions.
We will know that you are able to discuss the contract of insurance in South
African law and differentiate between indemnity and no indemnity insurance, the
essentialia of the contract of insurance, the duty of good faith, and other parties
to the insurance contract and statutory provisions when you are able to:
• Distinguish between indemnity and no indemnity insurance;
• List the essential elements of an insurance contract;
• Define and apply the principles of the duty of good faith;
• Name the other parties to the insurance contract and distinguish
between them; and
• Identify the statutory provisions applicable to insurance law.
5.2 Types of Insurance
There are two types of insurance contract:

• Indemnity insurance; and
• Non-indemnity insurance.

45
Table 5.1 Comparing Indemnity and No Indemnity Insurance
Indemnity Insurance Non-Indemnity Insurance

Insurer’s To make good the damage, To pay the insured or
undertaking which the insured may suffer beneficiary a fixed sum of
due to the event, insured money if the event insured
against. against takes place.
Types of Property insurance. Life insurance.
insurance Liability insurance. Personal accident insurance.
Example Car Insurers undertake to The SA Insurance Co
indemnify Mokgabo if her undertakes to pay Sikle R500
vehicle is stolen. If the car is 000 when his wife dies. Sikle
stolen and she can prove that will receive R500 000 from SA
the car was worth R30 000, Insurance Co when Sikle’s
Car Insurers will pay Mokgabo wife dies.
R30 000.
5.3 Essentialia
The essentialia of the insurance contract are (Table 5.2):
Table 5.2 Essentialia of the Insurance Contract
Essential provision Discussion

Undertaking by Can be in money or otherwise.
insured to pay a
premium.
Undertaking by Non-indemnity – sum will be a predetermined amount.
insurer to Indemnity – will be the value of the thing insured,
compensate usually subject to a maximum amount.
insured for loss.
Provision in terms The following must be included in the description of the
of which insurer’s risk:
duty depends on a • The object insured (e.g. house, person’s ability to
specific uncertain work);
future event • The hazard against which it is insured (e.g. theft,
(risk).
illness); and
• Circumstances which affect the risk (e.g. that
insurance is limited to loss occurring in specific
circumstances).
Insurable interest. Indemnity – the insured must suffer a financial loss if
the event insured against takes place.
Non-indemnity
On own life – you have an unlimited interest in your
own life; and

46
Someone else’s life – you must have a financial interest
in someone else’s life, for example a creditor in the life
of his or her debtor.
5.4 Duty of Good Faith
Piet fills in a proposal form with the SA Insurance Co for insurance on his life. He
is 35 years old and his cholesterol levels used to be dangerously high. He has
been on cholesterol medication for the past six months and his level is now just
above normal. He also suffers from depression and has more than once tried to
take his own life. During the application procedure he is asked whether he suffers
from high cholesterol, to which he answers no. The application form does not ask
specifically whether he has ever tried to take his own life, and he declines to
mention this. On the basis of his application, SA Insurance Co insures him for R2
000 000. Three years later, he suffers a heart attack, which does not kill him,
but as a result his depression deteriorates and he takes his own life. What are
SA Insurance’s remedies?
The insured has a duty of good faith to provide true information to the insurance
company and to furnish all information that might influence the risk, even if he
is not asked explicitly. In this case, he misrepresented some facts, i.e. regarding
his high cholesterol, and failed to disclose the fact that his depression of such a
nature, that there is a high risk, that he would commit suicide. Both the
misrepresentation and the nondisclosure were material and make the insurance
contract voidable at the instance of the insurer. The insurer can, therefore,
dispute the contract and they decide to void the contract, they need not pay out
the R2 000 000.
5.5 Other Parties to the Contract
The conclusion of insurance contracts is mostly facilitated through either

insurance brokers or insurance agents. The differences between them are the
following (Table 5.3):
Table 5.3 Differentiation between an Insurance Broker and Insurance

Agent
Insurance broker An independent intermediary.

Not tied to a specific insurer but may choose the
best insurer for the client’s needs.
Acts in terms of a contract of mandate between
himself or herself and the client.

47
In other words, the broker is the client’s
representative, and not the insurer’s
representative.
Insurance agent Works for a specific insurer and is not independent.
Acts in terms of a mandate from the insurer.
Is the insurer’s representative and does not
represent the client.
5.6 Statutory Provisions regarding the Insurance Contract
When a person is granted credit or loan, the creditor usually requires the debtor
to take out a policy to protect the interests of the creditor.
The creditor must give the debtor prior written notification that he or she has a
free choice:
• Whether to take out a new policy or to furnish an existing policy;
• If the debtor takes out a new policy, with what insurer to take out
the policy and who should act as intermediary;
• If the debtor furnishes an existing policy, who should act as
intermediary; and
• Whether or not the value of the policy benefits should be more than
the value of the interest of the creditor.
The debtor must confirm in writing that he or she received the above notification
5.1 Explain the difference between indemnity and non-indemnity insurance by
means of a table. Refer to the following: What is the insurer’s undertaking,
the types of insurance that would qualify and examples.
5.2 What is another word for non-indemnity insurance?

48
Topic 6
Intellectual Property Law and Franchising
Prescribed Reading
Before continuing with this topic, please read Section D: Chapter 18 in your
book.
6.1 Introduction

• Discuss intellectual property law and franchising in South Africa, with
specific reference to copyrights, patents, trade marks and franchising.
We will know that you are able to discuss credit intellectual property law and
franchising in South Africa, with specific reference to copyrights, patents, trade
marks and franchising when you are able to:
• Define copyright, patents, trademarks and franchising;
• Compare copyright and patents;
• Discuss the purpose of the law of trademarks and the registration,
infringement and remedies with regard to trade marks;
• Define franchising;
• List the advantages of franchising for the franchisor and franchisee;
and
• Provide the obligations of the franchisor and the franchisee.
Indicate whether the following statements are T (true) or F (false):

• The law of intellectual property is concerned with immaterial, and not
incorporeal, objects;
• Video recordings, trade marks and paintings can all be protected as
intellectual property; and
• The branches of intellectual property law are: the law of copyright,
the law of trademarks, competition law, partnership law and patent
law.

49
Solution:
F – an immaterial object is the same as an incorporeal object;
T; and
F – all except partnership law are correct.
6.2 Comparison between the Law of Copyright and the Law of

Patents
Table 6.1: Brief Comparison between the Law of Copyright and the Law of
Patens
Law of Copyright Law of Patents

What is it Copyright is concerned with the The law of patents is
concerned relationship between a legal concerned with the right
with? subject (copyright holder) and of an inventor to make,
an incorporeal legal object (in use and sell his or her
the form of a work). intention for a limited
period, provided that full
disclosure of the invention
is made.
What can be - Literary works. - A discovery.
protected? - Musical works. - A scientific theory
- Artistic works. - A mathematical method.
- Cinematograph films. - A literary, dramatic,
- Sound recordings. musical or artistic work
- Broadcasts and program- or any other aesthetic
carrying signals. creation.
- Published editions. - A scheme, rule or
- Computer programmes. method for performing a
mental act, playing a
game or doing business.
- A computer programme.
- The presentation of
information.
Requirements - The author must be a - The invention must:
qualified person* or the work - Be new;
must be made or first - Involve an inventive
published in South Africa. step; and
- *A qualified person is: - Be capable of use or
o A South African citizen or application in trade,
a person domiciled or industry or agriculture.
resident in the Republic;
or
o A juristic person
incorporated under the
laws of the Republic.

50
Period Usually 50 years. Read Maximum period of 20
paragraph 18.2.4 regarding the years.
moment this period starts
running.
Infringement When is copyright infringed? When is a patent
and remedies infringed?
Infringement occurs when a
person who is not the owner of Infringement occurs when
copyright, without the a person makes, uses,
permission of the owner, does exercises, and disposes or
anything which the owner has offers to dispose of or
the exclusive right to do or imports the invention
authorises someone else to do without the authority of
something which only the the patentee.
owner has the right to
authorise. Remedies
The patentee has the
Examples: following remedies:
- Reproducing the work in any - An interdict.
manner or form. - Delivery up of any
- Publishing an unpublished infringing product or any
work. article or product of
- Performing the work in which the infringing
public. product forms an
- Broadcasting the work. inseparable part; and
- Making an adaptation of the - Damages or an amount
work. calculated on the basis
of a reasonable royalty.
Remedies
- Infringement of copyright
may lead to criminal and civil
liability.
Civil remedies of the owner

are:
- Applying for an interdict.
- Claiming damages or a
reasonable royalty.
- Delivery to him or her of the
infringing copies; and
- Additional damages.
6.3 The Law of Trademarks
The purpose of a trademark is to distinguish the goods/services under the

trademark from the same kind of goods or services connected in the course of
trade with other persons.

51
The most important requirement for registration of a trademark is that the
trademark must be capable of distinguishing the goods or services from the
goods of services from other persons.
Certain marks cannot be registered as a trademark, for instance:

• A mark which is inherently deceptive.
• A mark which is identical to or too similar to a well-known
unregistered foreign mark.
• If the application is made in bad faith; and
• A mark that is contrary to law.
Paragraph 18.4.1.2 on page 288 contains more examples of marks that cannot
be registered.
The duration of a registered trademark is 10 years, and it may be renewed

indefinitely.
A registered trademark is not infringed by the bona fide use by a person of

his/her own name. Using a different mark for goods or services for which a
trademark has been registered is regarded as an infringement of the trademark
of those goods and services.
The remedies for infringement are:

• An interdict.
• Order for removal of the infringing mark from the material or
delivery of the material to the owner of the trademark; and
• Damages or reasonable royalties.
6.4 Franchising
Franchising occurs when a person (the franchisor) who has developed a certain
business system and who owns certain intellectual property (e.g. trademarks,
copyright, patents) in connection with the business system makes the system
and the use of the intellectual property available to others (the franchisees) in
exchange for payment.
Advantages for the franchisee:

• Franchisee gets an already proven business system.
• the franchisor provides ongoing training, support and advice; and
• the franchisee is shielded from normal risks associated with starting
one’s own business.

52
Advantages for franchisor:
• Each franchisee adds to the goodwill, which accrues to the
franchisor;
• the franchisor’s market share grows without a large capital
investment as it is financed by the franchisees; and
• royalties payable by the franchisees give the franchisor a
continuous source of income.
Read pages 291–297 for further information on the operation of a franchise.
6.1 Bob is a would-be writer who has not experienced a lot of success till now
and is currently living with his grandfather. One day, he finds an
unpublished manuscript written by his grandfather many years ago. He
submits it to a publisher. Does Bob have copyright in the manuscript?
6.2 Theo is a Namibian citizen and a successful artist. Will he have copyright
in South Africa on paintings painted in Namibia?
6.3 Name two differences between copyright and patents.
6.4 Discuss the obligations of the franchisor and the franchisee.

53
Topic 7
Forms of Business Enterprise
Prescribed Reading
book.
7.1 Introduction

• Explain the different forms of business enterprise in South Africa.
We will know that you are familiar with the different forms of business enterprises
in South Africa when you are able to:
• Define sole proprietorship, partnership, company, close corporation,
business trust and co-operative society;
• List the disadvantages of the sole proprietorship;
• Explain the essentialia and naturalia of partnerships, the partners’
rights and duties as well as how the partnership is terminated;
• List the characteristics of a company, know how to establish a
company,
• Identify the sources of company law;
• Discuss the formation, organs, shareholding and dissolution of a
company;
• Explain the steps in the formation of a close corporation and know the
number of members allowed;
• Discuss the member’s interest;
• Explain how the close corporation is represented;
• Discuss the business trust; and
• Describe how a business trust is established.
The following forms of enterprises are widely used in South African law:

54
Table 7.1 Forms of Enterprises
Enterprise Definition
Sole proprietorship. An enterprise with a single owner.
Partnership. A legal relationship, which arises contractually
between two or more persons, but not more than 20
in terms of which they agree to each contribute to a
common business with the object of making a profit
for division between each of them.
Company. A legal person established and run according to the
Companies Act 71 of 2008.
Close corporation. A legal person with characteristics of both a company
and a partnership.
Business trust. A trust where the trustees use the trust assets for
carrying on a business for profit in order to benefit
the trust beneficiary/ies or to further the aims of the
trust.
Co-operative. An organisation of its own kind acting for the benefit
of its shareholders and producing members.
7.2 Sole Proprietorship
The disadvantages of a sole proprietorship are the following:

• Success depends solely on the owner and the owner’s ability to run
the business and his/her creditworthiness;
• Assets of owner and business are not separated, i.e. the owner is fully
liable for the debts and liabilities of the business; and
• There are no tax benefits for the owner, as he/she pays tax in his/her
personal capacity.
7.3 Partnership
7.3.1 Essentialia
The essentialia of a partnership are the following (Table 7.2):
Table 7.2 The Essentialia of a Partnership
Essential Note
A contribution by - It may consist of capital (property, money, movable
each partner. assets), services, and knowledge, i.e. anything that
has commercial value.
- It must be made unconditionally – i.e. the partner
who makes it may not request that it be paid back to
© STADIO (Pty) Ltd Business Law I BLA152

55
him/her (then it becomes a loan and the person who
makes it, becomes a creditor).
The object of This essential really consists of two requirements:
making a profit to - The making of a profit; and
be divided among - Aim to distribute profit among members – partner
the partners. may choose the proportion of profit sharing, but no
partner may be entirely excluded.
Partnership
business to be
carried out for the
joint benefit of the
parties.
7.3.2 Naturalia
The naturalia (natural consequences of the partnership are the following):

• Each partner has the individual capacity to perform any legal act
regarding the administration of the partnership, provided it falls in the
business sphere of the partnership;
• If there is no agreement providing otherwise, the net profit is divided
in the same proportion as the partners’ contributions. If it is
impossible to put a value on the contributions, then it is divided
equally;
• Partners must also share the net losses. Partner can agree to be
excluded from sharing in the net loss, but there must be at least one
partner who will carry the losses. Net losses are shared in the same
proportion as net profits;
• The partnership assets are divided in the same proportion as the net
profits as a general rule;
• Assets belong to all partners in undivided shares.
7.3.3 Rights and Duties of Partners
The most important duty is the reciprocal fiduciary duty. This entails the duty of
a partner to:
• Comply with his/her duties in terms of the partnership agreement;
• Advance the partnership interests unselfishly; and
• Disclose all information relating to the partnership to all co-partners.
• Some of the rights of the partners are:
• To claim delivery of the contribution a partner promised;
• To share in the profits;
• To use partnership assets as co-owner to further the aims of the
partnership;

56
• To access the accounting records; and
• To participate in the management of the partnership.
7.3.4 Dissolution
State whether the following statements are true or false:

• A partnership may be ended by an express or tacit agreement
between the parties;
• If a partnership was formed for a specific project, the partnership can
be terminated at any time by reasonable notice;
• The only change in membership that would lead to the termination of
the partnership is the death of one of the partner; and
• The sequestration of the private estate of a partner does not mean
that the estate of the partnership has to be sequestrated.
Solution:
T;
F;
F; and
T.
7.4 Companies
7.4.1 Characteristics of a Company
A company has legal personality and exists separately from its members. As a
result, it has perpetual succession and is not affected by changes in membership.
It can incur rights and duties in its own name. The members are only liable in as
far as they invested in the company. The liquidation of the company does not
affect the estates of its members.
It is not in all respects the same as a natural person, e.g. it cannot perform acts
and needs an agent to act on its behalf.
7.4.2 Sources of Company Law
The sources of company law are:

• The Companies Act 71 of 2008; and
• Common law.

57
7.4.3 Formation
Before the registration of a company a Notice of Incorporation and Memorandum

of Incorporation must be filed with the Companies and Intellectual Property
Commission (CIPC). A company acquires legal personality at the moment of
registration. The doctrine of constructive notice means that all persons are
deemed to know the contents of the incorporation documents filed at the CIPC
since they are “public documents”. An ordinary resolution is a resolution by an
ordinary majority of members. A company with a share capital can be either a
private company or a public company. The company John’s Transport
(Proprietary) Limited is an example of a private company.
7.4.4 Company Organs and Officers
The organs of the company are (Table 7.3):
Table 7.3 The Organs of the Company
Organ Duty
General meeting of Determines general policy.
members.
Board of directors. Administration of company.
Company secretary Advising directors on law and legislation
(only public companies). applicable to company.
Director (two in case of Rights and obligations determined by contract with
public company). company, constitution, legislation and common
law.
Common law duties are:
Fiduciary duties; and
Obligations of care and skill to company.
7.4.5 Shareholding
The most important right the shareholder gets by virtue of his/her shares is the
right to receive dividends from the profits if dividends have been properly
declared.
Shares can be classified as:

• Preference shares;
• Ordinary shares; and
• Deferred shares

58
The difference between a par value shares and shares with no par value is that
par value share has an indicator of its value, whereas, a no par value share does
not.
7.4.6 Representation of a Company
Specific rules have been developed with regard to agency in company law. The
general rule of agency law would be that the agent should have the necessary
authority to bind the principal (company). The Companies Act has changed this
principle to allow for business needs.
Table 7.4 Rules regarding Agency in Company Law
If Then
The agent did not have the authority The contract concluded by the agent
merely because the transaction falls on behalf of the company will be
outside the scope of the company’s valid.
business
The directors exceed their authority, The company will not be bound to
for example if their authorisation is the transaction.
limited by the articles of the
company.
In terms of the articles a specific An outsider has the right to assume
director may be authorised by an that such authority has been
internal formality. obtained. This is called the Turquand
rule.
The outsider knows or should have He or she cannot rely on the
known that the authorisation has not Turquand rule.
been obtained.
The company has not yet been Pre-incorporation contracts may be
incorporated. concluded on its behalf.
7.4.7 Winding-Up, Dissolution and Deregistration
The existence of a company is terminated by its dissolution.
Before it is dissolved, it is wound up or liquidated, which means that the

company’s assets are traced and realised and the proceeds used to pay creditors
in order of preference. Any residue is distributed among shareholders.
If a company has stopped trading, it can be deregistered, which does not mean
that the company has ceased to exist, but if it starts trading again, it will be in
the form of an association without juristic personality.

59
7.5 The Close Corporation
7.5.1 Background
Because of the complexity of the Companies Act and the costs associated with
establishing and running a company, the legislator introduced the close
corporation, which is established in terms of the Close Corporations Act 69 of
1984.
The close corporation has characteristics of both a partnership and a company.

It is a legal person and exists separately from its members. It is not subject to
all the cumbersome and expensive formalities and requirements applicable to
companies.
However, the registration of new close corporations has not been allowed since
1 May 2011, the date on which the Companies Act 71 of 2008 (Companies Act)
came into force. However, existing close corporations will be allowed to continue
doing business. Because of the scope of this module a brief overview of close
corporations and the Close Corporations Act 69 of 1984 will be provided.
7.5.2 Formation and Membership
Formation
The most important document for the creation of a close corporation is a founding
statement, which is registered with the Registrar of Close Corporations.
The doctrine of constructive notice does not apply, as in the case of companies
– i.e. outsiders are not deemed to have knowledge of the contents of the
founding statement, as it is not a “public document”.
The name of the close corporation must end with CC or the translation in any
official language.
Members
Members may only be natural persons and the number of members is limited to
10. Members fulfil the roles of both the general meeting and the board of
directors in a company.

60
Every member is entitled to:
• Participate in the carrying on of the business of the CC;
• Exercise equal rights with regard to its management; and
• To represent the CC.
They have fiduciary duties and duties of care and skill towards the CC, similar to
those in the case of a company. Members are in principle not liable for the debts
of the CC.
7.5.3 Member’s Interest
State whether the following statements are true or false:

• The interest of a member in a close corporation is known as a
member’s share;
• Every initial member must contribute something for the formation
and incorporation of the close corporation. The contribution may
consist of property, money, services rendered, etc.
• Members may also make contributions at a later stage and this may
also consist of all of the above; and
• Members’ interests are expressed as a percentage and the
members’ interests will always amount to a total of 100.
The answers to the above are:

F – it is known as a member’s interest
T
F – subsequent contributions may not consist of services rendered
T
7.5.4 Representation of Close Corporation
The close corporation is a juristic person and must act through an agent. Every
member of the CC is an agent of the corporation and the corporation is generally
bound to the acts performed by an agent. As in the case of a company, contracts
can be entered into on behalf of a yet to be formed close corporation.
Conversion
State whether the following statement is true or false:

• A company can be converted into a close corporation, but a close
corporation cannot be converted into a company.
This statement is FALSE, as conversion can work both ways.

61
7.6 The Business Trust
7.6.1 Background
The private business trust resembles the partnership, private company and close
corporation. The business trust is developed from the ordinary trust.
You must be familiar with the following terminology:

Founder The person who establishes the trust.
Trust beneficiary The person/s who receives the benefits from the trust.
Trust object The purpose for which the trust is established.
Establishment
The requirements for the establishment of a business trust are the following:
• The founder of the trust must have the serious intention to create
a trust;
• The founder must express this intention so as to create a binding
obligation;
• The trust assets and trust beneficiaries must be readily
ascertainable;
• The trust object must be defined with reasonable certainty;
• The object of the trust must be lawful; and
• The object of the trust must be certain and must be to run a
business with the object of making a profit.
Specific aspects regarding the business trust
Read paragraph 21.6.4 on page 340 in your prescribed textbook.
7.7 The Co-Operative
Read paragraph 21.7 on pages 341–345 in your prescribed textbook.

62
7.1 What are the natural consequences of the partnership contract?
7.2 What is the most important right that the shareholder gets against the
company by virtue of the shares he/she owns in the company?
7.3 Name the three different classes of shares.
7.4 What is the difference between par value shares and shares with no par
value?
7.5 Briefly provide the characteristics of a close corporation.

63
Topic 8
The Law of Competition
Prescribed Reading
book.
8.1 Introduction

• Demonstrate an understanding of the most important principles of
the law of competition in South Africa.
We will know that you are familiar with the most important principles of the law
of competition in South Africa when you are able to:
• Distinguish between public competition law and private competition
law;
• List the elements of the delict, unlawful competition;
• Discuss the interdict as remedy for unlawful competition;
• Name the most important forms of unlawful competition;
• Identify the grounds of justification that make unlawful competition
lawful; and
• Provide a broad outline of legislation concerning the law of
competition.
The two areas of competition law in South Africa are:

• Public competition (antitrust) law: Relates to the maintenance and
promotion of competition; and
• Private competition law: Relates to unfair or unlawful competition.
The common objective is to ensure free and lawful competition.
Read points (a)–(d) under paragraph 22.1 on page 348 in your prescribed
textbook.

64
8.2 Public Competition Law
This field is mainly regulated by legislation, i.e.:

• The Competition Act 89 of 1998.
Read paragraph 22.2.1 on pages 349-350 regarding the above Act.
8.3 Private Competition Law
Contrary to situation in public competition law, the source of private competition

law is mainly the common law. Common law protection comprises:
• An interdict; and
• Damages on account of delict.
8.3.1 The Requirements of the Delict “Unlawful Competition”
To succeed with a delictual claim on account of unlawful competition, the basic

delictual requirements must be met. The Table 8.1 contains in the first column
the delictual element, and in the second column a description of what this
element looks like where unlawful competition is involved.
Fill in the empty blocks in Table 8.1.
Table 8.1 Delictual Element and Description
Element In the case of unlawful Notes

competition, this comprises:
The pursuit by two or more Actual competition is not
business entrepreneurs of required, but potential
the custom of the same competition is sufficient.
clients.
Wrongfulness Criteria are the “competition
principle” and
reasonableness (boni
mores).
Fault Negligence or intent. Test for negligence:
(culpability)
Test for intent:
Causation Factual and legal causation, Factual: The competitive act
as in other delicts. must cause the infringement
of the rival business’s
goodwill.

65
Legal: Asks the question
“which consequences can be
imputed to the wrongdoer?”
8.3.2 Remedies for Unlawful Competition
The remedy most often used in cases of unlawful competition is an interdict.

Damages are not often sought, because it is usually more important to prevent
a further infringement than obtain damages for a past infringement. The amount
of damages is also difficult to prove.
The interdict can be:
A prohibitory interdict OR A mandatory interdict:

• To prohibit the competitor from committing or continuing to commit
a wrongful act; and
• The competitor is required to perform some positive act to rectify
the situation he or she has caused.
A final interdict OR A temporary interdict:

• If a permanent prohibition is placed on the wrongful act; and
• The act is only prohibited until the outcome of the trial action.
Requirements for an interdict
Table 8.2 Requirements for an Interdict
Requirement Is it a requirement Notes

or not?
Act. Yes. Usually a threatened or actual unlawful
competitive act.
Wrongfulness Yes. The act must infringe or threaten to
of the act. infringe the competitor’s right to the
goodwill of his or her business.
No other Yes. A criminal sanction is not regarded as
remedy a remedy for the purposes of this
available. requirement.
Fault. No.

66
Forms of infringement
Unlawful competition could comprise:

• Passing off (imitation of victim’s distinctive marks);
• Spreading of disparaging and untrue allegations about competitor’s
products, service or business;
• Harassment of competitor’s customers, employees or suppliers
• Instigation of a boycott against a competitor;
• Deception concerning wrongdoer’s own enterprise or performance;
• Rivalry in contravention of a statutory provision;
• Appropriation of confidential trade information or trade secrets;
• Misappropriation of a rival’s performance (piracy); and
• Leaning on (misappropriation of advertising value).
Read the comments on the forms of unlawful competition from page 352–356 in
your prescribed textbook.
8.3.4 Grounds of Justification
A ground of justification is something that makes lawful an act, which seems to

infringe the right of another and is, therefore, in principle unlawful.
8.3.5 Legislation
Read paragraph 22.3.5 on self-regulation in your prescribed textbook.
8.1 Vincent has a paint shop in a busy shopping centre in Pretoria. He employs
Patrick to manage the shop. Patrick’s employment contract contains a
clause that in the event of termination of the contract, Patrick will not be
allowed to have a similar business in Gauteng, Limpopo, the North West
Province or Mpumalanga for 10 years after termination. Will the courts
enforce this clause in the contract? Discuss.
8.2 Maria starts a housecleaning business, Clean n Shine. Aggie has a rival
business, Spit and Polish. Maria gets a contact from overseas for excellent
cleaning products and her employees undergo three months’ training
before they are allowed to work in clients’ houses.

67
Aggie, on the other hand, who is very stingy, uses the cheapest products
possible and feels that training her people would cost too much. As a result
of Maria’s venture, Aggie loses half her clients within a year.
• Can Aggie claim damages from Maria on the basis of unlawful
competition?
• What would be your answer if Maria, instead of doing what is
described above, induced Aggie’s employees to come and work for
her and paid one of Aggie’s present employees to dilute Aggie’s
cleaning products, thereby causing Aggie to lose many clients?
• What is the legal term for what Maria has lost?
8.3 Give five examples of unlawful competition.
8.4 Read the following case studies and say whether the defendant has a
ground of justification in each case and name the defence.
• Tasneem and Yan are both in the catering business. To win more
clients, Tasneem starts telling everybody that she uses only organic
products. As a result, Yan loses some of the goodwill of her clients.
To defend herself against Tasneem’s unlawful act, she tells her
clients that she has seen Tasneem buying from a suspicious shop
downtown and that her ingredients are not organic; and
• Ulrich and Isak are both pool contractors. To make a bigger profit,
Isak uses chlorine of an unknown manufacturer that has not been
approved in South Africa and may have long-term consequences for
swimmers’ health. Ulrich is aware of this and feels obliged to warn
the public. As a result, Isak loses the goodwill of his clients.

68
Topic 9
The Law of Trusts
Prescribed Reading
book.
9.1 Introduction
After completing this topic, you should have:

• Have a Broad overview over the law of trusts in South Africa.
We will know that you have a broad overview over the law of trusts in South
Africa when you are able to:
• Define the concept trust;
• Describe the parties to the trust;
• Identify the features of and requirements for the establishment of
a valid trust;
• Can discuss the office of trustee, appointment of trustees and loss
of office of trustees;
• Identify the duties, powers and rights of trustees regarding the
administration of the trust;
• Name the rights of the trust beneficiary; and
• Discuss revocation, variation and termination of trusts.
Creating a trust enables you to:

• Prevent dissipation of your property after death;
• Provide for your children’s education;
• Make sure that your business continues to prosper when you die;
or
• Make an investment.

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A trust exists when:
• A person (the founder) has handed over or is bound to hand over
to another person (the trustee) the control of property, which must
be administered for the benefit of another (the beneficiary) for
some impersonal object.
The parties to a trust are:

The founder: The person who establishes the trust;
The trustee: The person who administers the trust. He or she becomes the
owner of the trust property (ownership trust) or the
administrator of the trust property (bewind trust); and
Beneficiaries: The people for whose benefit the trust is established and on
whose behalf the trust property is held and administered.
9.2 Basic Features
The basic features of a trust are:

• Transferring control of the trust property;
• Control of trust property handed over to the trustee; and
• Trust property administered for the benefit of the beneficiary.
Trust property can be movable or immovable property. It is a requirement for

the establishment of a trust that the founder must either transfer the property
or bound himself to transfer the trust property. A trust where ownership of trust
property is transferred to the trustee is called an ownership trust or a trust in
the narrow sense. A trust where ownership of trust property is transferred to the
beneficiaries is called a bewind trust and trustees administer the trust property.
A trust can have two types of beneficiary, income beneficiaries and capital
beneficiaries.
9.3 Trust Property Control Act 47 of 1988
Read paragraph 27.3 on pages 495-496 in your prescribed textbook.
9.4 Requirements for Creation of Valid Trust
The following is required for the establishment of a valid trust (Table 9.1):

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Table 9.1 Requirements for Creation of Valid Trusts
Requirement Discussion
It must be the - If the words used in the trust document are not very
intention of the clear that the founder intends to create a trust, no
founder to create trust is established.
a trust. - A trust can be created by means of:
o A written agreement;
o Testamentary writing; and
o Court order.
The intention must - The trust document must either oblige:
be expressed so o The trustee to administer the property in
as to create a accordance with the trust object; or
binding obligation. o Someone else or the founder to do what is
necessary to make sure that the trustee
administers the trust.
The trust property - Trust property can be any property whatsoever.
must be defined Examples are artwork, a trademark, a holiday home
with reasonable or a sum of money.
clarity. - The trust document may also state that the amount of
the trust property is left to the trustees’ discretion but
must in such a case determine an objective criterion
as a guide for the trustee.
The trust object - The trust object must be to control the trust property
must be defined for the benefit of:
with reasonable o Specific determinable persons or classes of person
clarity. (personal object); and/or
o An impersonal object.
The trust object - Trust object may not be in conflict with any legal rule,
must be lawful. good morals of public policy.
A discretionary trust is a trust where the trustees are given the power to appoint
the beneficiaries of a trust.
Factors that are not required
The following factors are not essential for a valid trust:

• Designation and/or acceptance by trustee;
• Transfer of trust property to trustee/beneficiary; and
• State authorisation.

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9.5 The Office of Trustees
9.5.1 Appointment
The conditions for appointment as trustee are the following:

• The appointment must be lawful;
• Trustee must be qualified to hold office;
• Trustee must accept the office; and
• The Master must issue written authorisation.
9.5.2 Lawful Appointment
The person making the appointment must have the power to make the
appointment. The trust instrument will indicate who has the power – usually the
founder, other trustee/s, beneficiaries, the Master, other persons, or the court.
Table 9.2 Lawful Appointment
If Then
The trust instrument does not The Master or the court has such
indicate who has to appoint the power.
trustees
Founder
The founder will usually name the trustee in the trust document. The founder’s
power may then come to an end or he/she could reserve the right to appoint
additional trustees or substitute a trustee.
Trustees
The trust document usually gives the trustees the power to appoint additional
trustees (the power of assumption). The power of assumption is not automatic,
it must be specifically granted.
The trust document may also give the trustees the power of subrogation. If a
trustee resigns, he/she will then have the power to appoint someone else to fill
the vacancy.
Trustees may also have the power of substitution, this means the power to
remove and replace other trustees.

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Beneficiaries
In the case of business trusts, beneficiaries are usually authorised in terms of
the trust document to appoint the trustees.
The Master
Table 9.3 Duties of the Master
Master’s duty in - Master may appoint trustee if

terms of trust o the office of trustee cannot be filled; or
instrument o the office becomes vacant
o and the trust document does not contain any
provisions as regards to the appointment of
trustees. It is therefore not a general duty and
arises only in these circumstances
o Must do so after consultation with interested
parties
Master’s general - Master may appoint any person he/she deems fit as
duty co-trustee if he/she deems it desirable, no matter
what the trust instruments provides.
Other persons
Example, auditor/attorney.
The court
The court has the inherent power to appoint trustees and may do so even if the
court’s appointment is not in line with what trust instrument stipulates.
The court will always consider the best interest of the beneficiaries.
9.5.3 Qualification of Trustee
Any natural or juristic person may be appointed as trustee, except:

• A person or his/her spouse who has written or witnessed the will in
which the trustee was appointed;
• A person of unsound mind (such person has no contractual
capacity); and
• Persons who do not meet the qualifications stipulated in the trust
instruments.
9.5.4 Acceptance by Trustee
A person nominated as trustee must give his/her consent to become a trustee.

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If the person appointed refuses to accept the appointment, the Master or the
court will appoint another trustee.
Acceptance may be explicit or tacit.
Written authorisation by Master
Authorisation will only be granted once the trustee has furnished security to the
satisfaction of the Master. The Master may:
• Dispense with security altogether;
• Reduce or cancel any security furnished;
• Order the furnishing of additional security; and
• Order a trustee who was exempted from furnishing security in
terms of trust instrument to furnish security.
Acts performed by a trustee who has been appointed in the trust instrument but
who has not been authorised by the Master will be invalid.
How many trustees
The number of trustees is not stipulated by law. One is sufficient, more than one
is acceptable and two is customary.
Loss of office of trustee
• Name four instances when a trustee will vacate office.

• What steps must be trustee take who wishes to resign?
• When may the Master remove a trustee from office?
Solution:
• The trustee will vacate office on death, when the trust instrument
provides a time for the trustee to vacate office, if the trustee is
appointed by virtue of his/her office and he/she vacates that office
and when the trust is terminated.
• If the trustee wishes to resign, he/she must notify the Master and
beneficiaries with legal capacity in writing and return the written
authority to Master.
• The Master may remove a trustee from office in the following
instances:
o On the trustee’s conviction of an offence of which dishonesty is
an element;

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o If the trustee fails to give security within two months of being
requested;
o If trustee’s estate is sequestrated/liquidated/placed under
judicial management;
o If trustee has been declared mentally ill or incapable of
managing his/her own affairs; and
o If trustee fails to perform satisfactorily any duty imposed by
the act or to comply with a lawful request by the Master.
9.6 The Administration of the Trust
Fill in the missing spaces in the table below.

Duties of trustee Powers of Rights of
Before During administration trustee trustee
administration
1. To lodge the 1. The powers 1.
trust instrument of the
with the Master. trustee are
listed in
the trust
deed and
are limited
to those
listed in
the trust
deed.
2. 2. To administer the trust in Examples: 2.
accordance with the trust
deed.2. To administer the
trust in accordance with the
trust deed.
3. To inform 3. To exercise independent
Master of any discretion in dealing with
change in trust matters.
address.
4. To give 4. To preserve the trust
security, unless property.
exempted.
5.
6.
7. To keep trust property
separate from his/her own.
8.
9. To act impartially.
10. To act with care, skill and
diligence.

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Correctly completed table:
Duties Powers Rights
Before During administration
administration
1. To lodge the 1. To take possession of the
trust instrument trust property. The powers of
with the Master. the trustee are listed in the
trust deed and are limited to
those listed in the trust
deed.1. Right of indemnity
for trust expenses.
2. To furnish the 2. To administer the trust in Examples: 2. Right to
Master with an accordance with the trust remuneration
address where deed. for services
notices and rendered.
process can be
serviced on
him/her.
3. To inform 3. To exercise independent
Master of any discretion in dealing with
change in trust matters.
address.
4. To give 4. To preserve the trust
security, unless property.
exempted.
5. To see that a reasonable
return is generated on any
income.
6. To account to beneficiaries
about trust administration.
7. To keep trust property
separate from his/her own.
8. To preserve all documents
related to trust
administration.
9. To act impartially.
10. To act with care, skill and
diligence.
Table 9.4 The Administration of Trust
If Then
A trustee fails to The Master or any interested party may apply for a
comply with his/her court order instructing the trustee to perform the
duties. duty; or
The Master may remove the trustee from office; or
The beneficiary may institute an action on account of
breach of trust.

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9.7 The Trust Beneficiary
9.7.1 Who Can Be a Beneficiary?
Any person can be a trust beneficiary, including unborn children, natural and
legal persons.
The founder or trustee may be the sole beneficiary but the founder may not be
the sole trustee and the sole beneficiary.
9.7.2 Rights of the Beneficiary
Table 9.5 Rights of the Beneficiary
If Then the
The trustee owns the trust property. Trust beneficiary has a personal right
to claim the income or capital due to
him/her.
The beneficiary owns the trust Trust beneficiary has a real right.
property (bewind trust).
There is more than one beneficiary in Other trust beneficiaries have a
a bewind trust. personal right against the beneficiary
who owns the trust property.
9.8 Revocation, Variation and Termination
9.8.1 Revocation
Revocation is the process by which the founder with or without the co-operation
of the trustee and/or beneficiaries ends a trust which has already been created.
Table 9.6 Revocation
If Then
The trustee and the beneficiary have The founder may revoke the trust
not yet accepted their appointments. unilaterally.
The trustee has accepted his/her The trust may be revoked with co-
appointment. operation of trustee.
The beneficiary has accepted his/her The trust may not be revoked
appointment. without beneficiary’s consent.

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9.8.2 Variation
Variation is the process by which the terms of the trust are changed.
Table 9.7 Variation of Trust
If Then
The trustee and the beneficiary have The founder may alter the trust
not yet accepted their appointments. unilaterally.
The trustee has accepted his/her The trust may be altered with co-
appointment. operation of trustee.
The beneficiary has accepted his/her The trust may not be altered without
appointment. beneficiary’s consent.
The trust instrument contains any The court may delete or change such
provision which results in provision.
consequences, which, according to
the court, the founder of the trust did
not foresee.
9.8.3 Termination
Termination takes place when the trust is discharged.
A trust will terminate when:

• The object of the trust has been realised or the trust has run its
course and the trust property distributed as prescribed;
• The trust property is destroyed by no fault of the trustee and
nothing replaces the destroyed property;
• Acceleration of benefits of the capital beneficiary has taken place or
after renunciation or repudiation of the benefits of the income
beneficiary; and
• The court orders cancellation of the trust.
9.9 Other Legal Institutions Similar to a Trust
Read paragraph 27.10 on pages 512 in your prescribed textbook.
9.1 Name the parties to a trust and discuss the role of each.

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9.2 State whether the following statements are true or false:
• The founder can remain the sole owner of the trust property.
• The founder may be a co-trustee, but not a sole trustee.
• The founder may not be a beneficiary of the trust, but not a sole
beneficiary.
• The capital beneficiary has a claim to the revenue or fruits of the
trust capital.
• A person can be both a capital and an income beneficiary.
9.3 What is a trust inter vivos?
9.4 What type of contract is used to create the trust inter vivos?
9.5 Can a trust established for an impersonal purpose also be classified as this
type of contract?
9.6 When does the beneficiary acquire a right in terms of the above contract?
9.7 What are the characteristics of a trust inter vivos?
9.8 What is a trust called that is created by means of a will when property is
bequeathed to be administered by a trustee on behalf of the beneficiaries
in the will?
9.9 Define “discretionary trust”.
9.10 The founder establishes a trust with the following trust object: The
purpose of the trust is to give financial assistance to children in the Darling
Primary School who are unable to afford the school fees. Is it a valid
object?
9.11 Would the object be valid if the trust object read: The purpose of the trust
is to give financial assistance to children in the Darling Primary School
who are unable to afford the school fees and also such other persons as
the trustees may be determine?
9.12 What do you call a trust established to protect a beneficiary against
him/herself?
9.13 When would a trust with an impressionable object be valid?
9.14 When will the trust terminate?

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Topic 10
The Law of Insolvency
Prescribed Reading
Before continuing with this topic, please read Section D: chapter 28 in your
book.
10.1 Introduction

• Demonstrate an understanding of the most important principles of
the law of insolvency in terms of the Insolvency Act 24 of 1936.
We will know that you know the most important principles of the law of insolvency
in terms of the Insolvency Act 24 of 1936 when you are able to:
• Identify the problems of people who cannot pay their debts and for
their creditors;
• List the requirements for voluntary surrender and compulsory
sequestration;
• Name some acts of insolvency;
• Discuss the consequences of sequestration;
• Identify impeachable transactions;
• Discuss the appointment and duties of the trustees;
• Describe how a creditor would prove his/her claim;
• Demonstrate an understanding of what composition and
rehabilitation means; and
• Demonstrate an understanding of the highlights of winding up and
liquidation of companies and close corporations.
• What are the implications for creditors and for the debtor if a
debtor’s liabilities exceed his/her assets?
• What Act tries to solve these problems?

80
Answers to the above questions:
• Implications:
For creditors: The claims of the creditors who act against the debtor first
will be paid in full while the others will receive little or nothing.
For the debtor: He/she may never be able to overcome his/her financial
problems because his/her creditors will immediately attach any assets.
Insolvency Act 24 of 1936
There are two possibilities to be declared insolvent: voluntary surrender and

compulsory sequestration.
10.2 Voluntary Surrender
The debtor himself/herself applies to court to surrender his/her estate.
Requirements:
• The debtor must comply with the prescribed formalities;
• The debtor must prove insolvency;
• The surrender must be to the financial advantage of his/her
creditors; and
• There must be sufficient assets to cover the costs of sequestration.
10.3 Compulsory Sequestration
Requirements:
• The creditors of the insolvent may also bring a claim provided that:
o The creditor has a liquidated claim of at least R100; and
o Has notified the relevant parties.
An applicant applying for compulsory sequestration of a debtor must prove the

following:
• That he/she has the necessary claim against the insolvent;
• That the insolvent is indeed insolvent or that he/she has committed
an act/more than one act of insolvency; and
• That there is reason to believe that sequestration is to be benefit of
creditors.
The court will first grant a provisional sequestration order and postpone the case
for a period to give interested parties an opportunity to object. If no objections
are received, the provisional order will be confirmed.

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The Acts of Insolvency
See pages 517-518 in your prescribed textbook for a full list of the acts of
insolvency.
10.4 Consequences of Sequestration
Table 10.1 Consequences of Sequestration
Consequence Discussion Notes

Personal Certain offices may not be held For example company
consequences by the insolvent. director.
The insolvent may not do
business as a general dealer or
manufacturer or be in the
employ of such business.
The insolvent has certain duties For example attending
with regard to the process. meetings and answering
questions.
Written consent of trustee is
needed to enter into some
contracts. The insolvent may
not dispose of estate’s assets.
Property of - Insolvent loses ownership of Some property is
the insolvent estate. excluded, e.g. clothes and
- Estate vests in Master. bedding and certain
- As soon as trustee has been furniture. Read page 524
appointed, estate will vest in in connection with
trustee. excluded property.
Civil Civil proceedings against the
proceedings insolvency in relation to the
insolvent estate, is stayed, until
the appointment of a trustee.
Uncompleted Insolvency does not necessarily Exception: Contract of
contracts influence contracts entered into mandate (either
by insolvent before mandator’s or
sequestration. mandatory’s estate
sequestrated)
If the insolvent has
performed but the other
party not, the trustee can
claim performance from
the other party.
If neither party has
performed, the trustee
can claim performance
and has to tender full

82
performance of the
insolvent’s obligations.
If the trustee does not
want to proceed with the
contract, he/she may
repudiate it.
If the other party has
performed but the
insolvent not, the trustee
may perform or repudiate
the contract.
Contract of If employer is sequestrated, all
employment employment contracts are
immediately suspended.
Sequestration of the employee
has no effect on his/her
employment contract.
Instalment If the purchaser is sequestrated,
sale ownership in the article will pass
agreements to him/her immediately. The
seller obtains a hypothec over
the article sold and becomes a
secured creditor of the estate.
Cash sale of If the goods were delivered and
movable the price not paid, the seller can
property claim back the goods within 10
days of delivery. If the seller’s
estate is sequestrated, the rules
for uncompleted contracts will
apply.
Sale of Estate of purchaser Read paragraph 28.4.4.4
immovable sequestrated before transfer: for further discussion
property The trustee can choose whether about this topic.
to repudiate or uphold the
contract.
If he/she chooses to uphold, the
full purchase price must be paid.
Estate of seller sequestrated
before transfer, the rules for
uncompleted contracts will
apply.
Contracts of If the lessee’s estate is
lease sequestrated, the lessor may
not terminate the contract. If
the contract is upheld, the
lessor must be notified within
three months of the trustee’s
appointment.

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If the trustee does not exercise
a choice between repudiating
and upholding the contract, the
contract will lapse automatically
within three months of trustee’s
appointment.
The rent for the period after
sequestration forms part of the
sequestration costs.
Where the Lessor’s estate is
sequestrated, the trustee may
uphold or repudiate the contract
and the lessee will have a
concurrent claim for damages.
Solvent All the property of the solvent The following types of
spouse’s spouse also vests in the Master property have to be
property and the spouse has to apply to released:
the trustee or the court for - Property that belonged
release of the property. to the solvent spouse
immediately before
If the property is not released, it conclusion of the
is used with the insolvent’s marriage;
property to satisfy the claims of - Property the spouse
the creditors of the solvent acquired in terms of an
spouse. If money is left, it is ante nuptial contract;
used for the insolvent spouse’s - Property acquired by
creditors. the spouse during the
marriage if it was
If the spouse carries on bought with the
business as a trader he/she may spouse’s own salary or
obtain an urgent court order to it was a donation; and
postpone such vesting in the - The proceeds of
Master of the trustee. property which would
have had to be release
or property obtained
with such proceeds.
10.5 Impeachable Dispositions
Read pages 524–526 for a discussion of other impeachable transactions.
10.6 Appointment of Trustee
When an estate is sequestrated, the Master appoints a provisional trustee. A

trustee is elected at the first meeting of creditors and the Master usually confirms
his/her appointment.

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Duties of trustee:
• Taking control of the estate;
• Recovering debts due to the estate;
• Realising the assets of the estate; and
• Dividing the proceeds among the creditors.
10.7 Meetings with Creditors
At least two meetings of creditors must be held. At the first meeting, creditors
get the opportunity to prove their claims, a trustee is elected and the insolvent
or other persons who may have information may be questioned.
At the second meeting, there is another opportunity for proving claims and
questioning the insolvent or other persons. The trustee also reports back on the
insolvency and receives instructions from the creditors about the administration
of the estate.
10.8 Proving of Claims by Creditors
The creditor proves his/her claim by submitting an affidavit which sets out the
following:
• The particulars of the claim
• The circumstances under which it arose
Supporting documents should be attached.
10.9 Realisation and Division of Estate
The insolvent estate is realised and divided as follows (Table 10.2):
Table 10.2 Realisation and Division of Estate
Step Action Note

1. Creditors instruct trustee in Assets can be realised by:
what manner to realise the Public auction;
assets. Public tender; and
Private sale.
2. After liquidation, assets are There are two groups of assets, i.e.:
distributed according to order Encumbered assets; and
of preference. Free residue.

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Free residue comprises all
unencumbered assets. This is used to
pay preferential claims and then
concurrent claims. Page 528 in your
prescribed textbook contains a list of
preferent claims.
3. Secured creditors are paid. Encumbered asset is an asset
regarding a secured claim, e.g. the
object of a mortgage bond of
hypothec.
The proceeds are used first to pay the
costs of sequestration regarding that
asset and then to pay the secured
creditor.
If there is money left, it will form part
of the free residue
4. Preferent claims are paid. Page 528 in the prescribed textbook
contains a list of preferent claims.
5. If anything is left after the They are paid proportionately.
payment of preferent claims,
concurrent creditors will be
paid out of the free residue.
6. If the free residue is not
enough for the costs of
sequestration, concurrent
creditors will have to make a
proportional contribution
towards the costs.
7. The trustee draws up a
liquidation and distribution
account.
10.10 Composition
Read paragraph 28.11 on page 529 of the prescribed textbook.
10.11 Rehabilitation
Read paragraph 28.12 on page 530 in the prescribed textbook.
10.12 Winding Up of Companies and Close Corporations
Read paragraph 28.13 in the prescribed textbook (pages 530-531).

86
10.1 What must the applicant prove in an application for compulsory
sequestration of a debtor?
10.2 Name four acts of insolvency.
10.3 State whether the following are impeachable dispositions and if so, what
type of impeachable dispositions they are:
• Aiden is deeply in debt and his liabilities exceed his assets. One of
his creditors is his girlfriend who lent him R50 000. He prefers to pay
her back, rather than the other creditors; otherwise, she might leave
him. He therefore sells one of his cars and pays her back her R50
000.
• Tommy and Liz are married and in terms of the duly registered ante
nuptial contract, Tommy had to donate R200 000 to Liz. He
transferred the money to her two months after the wedding. At the
time, his liabilities exceeded his assets. He is subsequently
sequestrated.
• Ying Lan is the owner of a Chinese restaurant in Pretoria. Struggling
to pay her creditors, in May 2006 she sells the restaurant to Ho Lee
(one of her creditors) without publishing notice of the transfer of the
business in the Government Gazette or any other newspaper.
10.4 At least ____________ meetings of creditors are held, but more may be
held if necessary.
Meeting What happens
First meeting
Second meeting
10.5 State whether the following is true or false:

• It is important for a creditor to prove his/her claim, because then it
means that it will be paid out in full; and
• If the estate cannot cover the sequestration costs, all concurrent
creditors who have proved their claims must pay a contribution
towards the costs.

87
References
Havenga, P., Havenga, M., Hurter, E., Kelbrick, R., Manamela, E., Manamela, T.,
Schulze, H. & Stoop, P. 2010. General principles of commercial law. 7th ed.
Lansdowne: Juta & Co.
Schulze, H., Kelbrick, R., Manamela, T., Stoop, P., Manamela, E., Hurter, E. &
Masuku, B.P. 2014. General principles of commercial law. 8th ed. Lansdowne:
Juta. [ISBN: 978–1–485–10629–6]
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Answers to Self-Assessment Questions
Topic 2
2.6 No – this is an error in motive and there was indeed consensus in respect
of the terms of the contract.
No, because this is a mistake concerning the content of the contract, i.e.
the performance due.
Yes, there will be a valid contract. This is a case of mistake about the
attributes of the object of performance and does not affect consensus.
No. It is once again a mistake about the attributes of the object of
performance which will not affect consensus.
2.10 The party who was influenced by duress directed his/her will at the
contents of the contract and a contract does come into existence.
However, because the consensus was obtained in an improper manner,
his/her independent will was not exercised and the victim may choose:
• To uphold or rescind the contract; and/or
• Claim damages based on negative interest.
2.13 Because Mr and Mrs Blignaut did not apply for the abolishment of marital
power in their marriage, the marital power still applied and she had to
obtain Mr Blignaut’s consent to buy the car. Mr Blignaut can therefore
decide to void the contract if he so wishes.
2.14 If no ante nuptial contract was entered into before the marriage, the
parties are married in community of property. There is only one joint
estate and the joint estate acquires profits and bears the losses arising
during the marriage. Because there is no longer any marital power, each
spouse has full capacity to conclude contracts on behalf of the joint estate.
For certain transactions, both parties’ consent will be required.
2.15 These marriages are automatically subject to the accrual system unless it
was expressly excluded in the ante nuptial contract. Accrual is the amount
by which the net value of a spouse’s estate at dissolution of marriage
exceeds the net value of his/her estate at the start of the marriage.
2.17 It depends on the stipulations of the Act.
It depends on whether the parties require the formality to be a
requirement for validity or whether it is required for another reason.
2.18 Where a grocery shopper puts items in a trolley and unloads the trolley at
the pay point and pays the amount indicated on the cash register.
2.20 The client reads and understands the document and by his/her conduct
he/she indicates that the terms are accepted, for example by entering the
movie theatre. Although it cannot be proven that the client read the

89
document, if the supplier took reasonable care to draw the client’s
attention to the terms and the client indicates by means of conduct that
they are accepted, there will be a valid contract.
2.23 The case of Mrs Molome describes positive malperformance. Y is not
obliged to wait until 17 March 2007 before taking action, as X breached
the contract the moment he informed Y that he no longer intends the
honour the contract.
Where the contract specifies a date for performance, the debtor will be
automatically in default if he does not perform before/on that date.
Where no such date is specified in the contract, the creditor must first
determine a (reasonable) date for performance by means of a letter of
demand.
2.24 Mrs Moses can decide to:
• Claim specific performance; or
• Cancel the contract.
Because time was of the essence, it is unlikely that she would choose
specific performance and she is more likely to cancel the contract. She is
entitled to cancel the contract even though the contract does not include
a cancellation clause, because time was of the essence. In addition, she
can also claim damages to place her in the position she would have been,
had the contract been honoured (positive interest). Damages would
amount to R30 000 for the cancelled orders and R1 000 for the
ingredients. Both amounts meet the requirements for damages, i.e. it was
a patrimonial loss, there was a causal link between the breach and the
loss and the loss was foreseeable.
Damages will be the difference between the contract price charged for the
milk and eggs and the market value of milk and eggs on the day scheduled
for delivery at Mrs Moses’ residence.
Because there is no date fixed for performance, Frank must place Joseph
in mora by sending him a letter of demand and in the letter fix a date for
payment. Interest must be paid on the outstanding amount in order to
put Frank in the position he would have been, had the contract not been
breached. Interest will run from the date indicated in the letter of demand.
Damages will be the amount charged by Baths and Basins for the repair
work.
2.25 • Agreement, i.e. release;
• Agreement, i.e. settlement;
• Set-off;
• Prescription; and
• Impossibility of performance after conclusion of contract.

90
Topic 3
3.1 No, as the seller (Sally) was not the owner of the merx, she could not
transfer ownership to Maria and therefore ownership was not transferred.
No – Ownership in immovables can only be transferred by registration in
the buyer’s name at the Deeds Office. Symbolic delivery is not sufficient.
Yes, this is delivery with the long hand. The puppy was pointed out to
Maggie and she has paid the purchase price.
3.2 The contract will become perfecta if and as soon as Mr X has sold his car.
Until then, the seller, Mrs Y, will bear the risk.
Farmer Brown will bear the risk. The contract is perfecta because
individualisation has taken place – Farmer Brown was shown what
chickens he is buying.
Topic 4
4.3 Thandi has a tacit hypothec over all movables brought onto the rented
property, i.e. everything that Natalie has in the flat. This means that
Thandi can attach everything in Natalie’s fact and have it sold in execution
and take that money in the place of the rent that has not been paid. Thandi
must get a court order for the attachment. The hypothec expires as soon
as Natalie pays the arrear rent.
4.4 • Natalie. On the grounds of the maxim, huur gaat voor koop or hire
takes precedence over sale;
• This will only work when the property is alienated by the lessor (i.e.
sold, exchanged or donated) and not when the property is
expropriated. In other words, if the government expropriates the
land, Natalie can no longer insist on renting the property from the
government; and
• Yes. The maxim binds both the lessor and the lessee, i.e. if Karabu
buys the flat while Natalie is renting it, Karabu is bound by the lease
and Natalie cannot rely on the sale to cancel the contract.
Topic 6
6.1 No. One of the inherent requirements, namely originality, is not met.
6.2 No. Here one of the formal requirements is not met, in that Theo is not a
South African citizen and the work has not been made in South Africa.
6.3 Any two of the following:
• For copyright, there are no registration requirements and copyright
will subsist automatically while for patents an application must be
lodged at the Patent Office.

91
• Infringement of copyright can lead to criminal liability, while
infringement of a patent only leads to civil liability.
• Copyright is conferred for a period of 50 years and the 50 years start
running only when the author dies, so copyright lasts much longer
than a patent, which can be registered for a maximum period of 20
years.
• Copyright costs nothing, while annual renewal fees have to be paid
for a patent.
6.4 Refer to chapter 17 of your prescribed textbook.
Topic 8
8.1 South African courts regard a restraint of trade as enforceable in principle,

except if it is contrary to public policy or the public interest. If this is the
case, it will still not be void, but only unenforceable. The court will most
probably regard this clause as unenforceable, because it is against public
policy or the public interest to restrict competition in the manner that this
contract does it. If Patrick is of the opinion that the contract should not be
enforced, it is up to him to prove to the court that it is against public policy
or public interest.
8.2 • No, because Maria is practising “merit competition”, which is
competition in accordance with the competition principle, which is
central to a capitalist economy. She did not infringe Aggie’s right to
attract custom, or goodwill. As a result, her actions are not wrongful
and Aggie cannot prove a delict.
• In this case, it would be unlawful competition because Maria’s actions
are wrongful as what she does is contrary to public policy.
• Goodwill.
8.4.4 Yes. Private defence.
Yes. Public interest.
Topic 9
9.2 False;
True;
False;
False; and
True.
9.3 A trust established by means of a contract between living persons coming
into existing during the founder’s lifetime.
9.4 Contract for the benefit of a third party.
9.5 No.

92
9.6 As soon as he or she has accepted the benefit.
9.7 • It can be amended with the consent of the founder and the trustee.
• It can be revoked by agreement between the founder and the trustee
before the beneficiary accepts the benefits.
• As soon as the third party accepts the benefits, he or she becomes a
party to the contract and his/her permission is necessary for the
revocation of the trust.
• If the beneficiary does not accept the benefit, a trust still comes into
existence but the distribution of benefits will be affected.
9.8 Trust mortis causal.
9.9 A discretionary trust is a trust where the trustees are given the power to
appoint the beneficiaries of a trust.
9.10 Yes. The class of person for whose benefit the trust is established is
determinable.
9.11 No. The class of person for whose benefit the trust is established is not
specified of determinable.
9.12 A protective discretionary trust.
9.13 If the trust has a charitable object.
9.14 A trust will terminate when:
• The object of the trust has been realised or the trust has run its
course and the trust property distributed as prescribed;
• The trust property is destroyed by no fault of the trustee and nothing
replaces the destroyed property;
• Acceleration of benefits of the capital beneficiary has taken place or
after renunciation or repudiation of the benefits of the income
beneficiary; and
• The court orders cancellation of the trust.
Topic 10
10.1 • For the creditors: the claims of the creditors who act against the
debtor first will be paid in full while the others will receive little or
nothing.
For the debtor: he/she may never be able to overcome his/her
financial problems because his/her creditors will immediately attach
any assets.
• Insolvency Act 24 of 1936.
10.3 Yes, undue preference;
No; and
Yes, voidable transfer of a business.
10.5 False; and
True.

93

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Business Law I

Please consult CANVAS@mySTADIO to confirm whether a prescribed textbook must

There may also be reference to additional recommended reading material available

A Glossary of terms may be provided at the end of this study guide.

It is your responsibility to regularly access CANVAS@mySTADIO to make sure that

Our commitment to our students is to maintain friendly, fast and efficient

SOUTH AFRICAN OFFICE:

Please refer to CANVAS at https://stadio.instructure.com/login/canvas for the

Lecturer Mr R van Niekerk

Cell +27 (0) 76 151 8097

You may contact your Lecturer should you have questions or

The Discipline Leader is Ms K Erasmus (email: kristie@stadio.ac.za).

LOCATION CONTACT PERSON

STORE: Academic Books

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Heading Page number

MODULE PURPOSE AND OUTCOMES 1

Topic 2 General Principles of the Law of Contract 8

Topic 3 The Contract of Sale 37

Topic 4 The Contract of Lease 42

Topic 5 The Contract of Insurance 45

Topic 6 Intellectual Property Law and Franchising 49

Topic 7 Forms of Business Enterprise 54

Topic 8 The Law of Competition 64

Topic 9 The Law of Trusts 69

Topic 10 The Law of Insolvency 80

ANSWERS TO SELF-ASSESSMENT QUESTIONS 89

This assignment is compulsory and must be submitted through CANVAS,

STEP 1: COMPLETING YOUR ASSIGNMENT

©STADIO [Introduction to Business Law – BLA100/152] [Assignment – 2024 Semester 2]

STEP 2: SUBMITTING YOUR ASSIGNMENT ON CANVAS

1. Log in to CANVAS using your MySTADIO details:

©STADIO [Introduction to Business Law – BLA100/152] [Assignment – 2024 Semester 2]

Question 2 You may not use AI.

Question 1 (10 marks)

©STADIO [Introduction to Business Law – BLA100/152] [Assignment – 2024 Semester 2]

Which of Samuel’s rights has the chairperson infringed?

1.3. Which ONE of the following statements is CORRECT?

Is there a valid contract between Peter and Gary?

©STADIO [Introduction to Business Law – BLA100/152] [Assignment – 2024 Semester 2]

Which ONE of the following statements is CORRECT?

Discuss the difference between “Law of persons” and “Law of personality”.

Question 3 (17 marks)

Answer the following:

3.1.1 Discuss the requirements for a valid contract. (5)

©STADIO [Introduction to Business Law – BLA100/152] [Assignment – 2024 Semester 2]