Generic - Business Law

BUSINESS LAW
Module Guide
Copyright © 2024
MANCOSA
All rights reserved, no part of this book may be reproduced in any form or by any means, including photocopying machines,
without the written permission of the publisher.Please report all errors and omissions to the following email address:
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This module guide,
Business Law(NQF Level 6)
will be used across the following programmes:
Bachelor of Commerce in International Business

Bachelor of Commerce in Entrepreneurship
Bachelor of Commerce in Marketing Management
Bachelor of Commerce in Retail Management
Bachelor of Commerce in Project Management
Bachelor of Commerce in Financial Management
Bachelor of Commerce in Accounting
Bachelor of Commerce in Supply Chain
Management
Bachelor of Commerce in Tourism Hospitality and
Management
Bachelor of Commerce in Digital Marketing
Business Law
Table of Contents
Preface 2
Unit 1: Introduction to Business Law 9
Unit 2: The Law of Contract 24
Unit 3: The Law of Sale 50
Unit 4: The Law of Lease 62
Unit 5: The Law of Insurance 73
Unit 6: Labour Law 80
Bibliography 116
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Preface
A. Welcome
Dear Student
It is a great pleasure to welcome you to Business Law (BL6). To make sure that you share our
passion about this area of study, we encourage you to read this overview thoroughly. Refer to it as
often as you need to, since it will certainly make studying this module a lot easier. The intention of
this module is to develop both your confidence and proficiency in this module.
The field of Business Law is extremely dynamic and challenging. The learning content, activities
and self- study questions contained in this guide will therefore provide you with opportunities to
explore the latest developments in this field and help you to discover the field of Business Law as it
is practiced today.
This is a distance-learning module. Since you do not have a tutor standing next to you while you
study, you need to apply self-discipline. You will have the opportunity to collaborate with each other
via social media tools. Your study skills will include self-direction and responsibility. However, you will
gain a lot from the experience! These study skills will contribute to your life skills, which will help you
to succeed in all areas of life.
Please note that some Activities, Think Points and Revision Questions may not have answers
available, where answers are not available this can be further discussed with your lecturer at
the webinars.
We hope you enjoy the module.
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copyrighted material from this guide for purposes of your own that extend beyond fair dealing/use, you
must obtain permission from the copyright owner.
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B. Module Overview
The module is a 15 credit module at NQF level 6
Aims of this Module
This module is aimed at introducing the learner to certain aspects of South African Business The
learner will gain an overview of the legal environment as it relates to South African businesses of
various types, and certain key contractual and transactional relationships.
The purpose of this module is to provide students with a basic introduction into the South African
legal system relating to commercial law. Whilst the learner will not be required to know the details of
the historical development of the legal system, it is within this structure that current legislation has
been developed.
The module also covers the law of obligations; introduction to the law of contract; the formation of a
contract; principles and rules concerning valid and binding contracts; breach of contract; remedies
on the ground of breach of contract; the transfer and termination of obligations.
The law of lease governs the occupation of properties and possession of durables. The law of
purchase and sale is also critical in business as it determines the way in which goods and services
are offered and accepted. The law of insurance is covered briefly as an overview of this important
element of business operational requirements. The law pertaining to employment and alternative
dispute resolution in South Africa is currently dynamic and evolves daily. The learner will gain an
understanding of the key legal relationships and requirements governing businesses and the
participants in business relationships.
Module Overview
Describe the legal framework within which businesses operate;

Explain the requirements associated with the formulation of a contract;
Outline the rights of parties associated with sale agreements;
Outline the rights of parties associated with lease agreements;
List the salient details of the laws associated with employment;
Identify the essential elements of any contract of insurance;
Display knowledge of consumer legislation; and
Evaluate the impact of consumer legislation
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C. Learning Outcomes and Associated Assessment Criteria of the Module
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D. How to Use this Module

This Module Guide was compiled to help you work through your units and textbook for this module,
by breaking your studies into manageable parts. The Module Guide gives you extra theory and
explanations where necessary, and so enables you to get the most from your module. The purpose
of the Module Guide is to allow you the opportunity to integrate the theoretical concepts from the
prescribed textbook and recommended readings. We suggest that you briefly skim read through the
entire guide to get an overview of its contents. At the beginning of each Unit, you will find a list of
Learning Outcomes. This outlines the main points that you should understand when you have
completed the Unit/s. Do not attempt to read and study everything at once. Each study session
should be 90 minutes without a break.
This module should be studied using the prescribed and recommended textbooks/readings and the
relevant sections of this Module Guide. You must read about the topic that you intend to study in the
appropriate section before you start reading the textbook in detail. Ensure that you make your own
notes as you work through both the textbook and this module.
In the event that you do not have the prescribed and recommended textbooks/readings, you must
make use of any other source that deals with the sections in this module. If you want to do further
reading, and want to obtain publications that were used as source documents when we wrote this
guide, you should look at the reference list and the bibliography at the end of the Module Guide. In
addition, at the end of each Unit there may be link to the PowerPoint presentation and other useful
reading.
E. Study Material
The study material for this module includes the programme handbook, this Module Guide, and a list
of prescribed and recommended textbooks/readings which may be supplemented by additional
readings.
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F. Prescribed Textbook
The prescribed and recommended readings/textbooks presents a tremendous amount of material in
a simple, easy-to-learn format. You should read ahead during your course. Make a point of it to re-
read the learning content in your module textbook. This will increase your retention of important
concepts and skills. You may wish to read more widely than just the Module Guide and the
prescribed and recommended textbooks/readings, the Bibliography and Reference list provides you
with additional reading.
The prescribed and recommended textbooks/readings for this module are:
Prescribed Reading(s)
Kopel, S. (2022) Guide to Business Law. Seventh Edition. Cape Town: Oxford University Press.
Recommended Reading(s)
Bradfield, G., Kahn, E. and Lehmann, K. (2022) Principles of the Law of Sale and Lease. Eighth
Edition. Durban: LexisNexis.
Du Plessis, J.V. and Fouche´, M.A. (2019) A Practical Guide to Labour Law. Ninth Edition.
Durban: LexisNexis. Unit 6 of module guide.
Hutchison, D., Pretorius, C.J. and Naude´, T. (2022) The Law of Contract in South Africa. Fourth
Edition. Cape Town: Oxford University Press.
Scott, J. et al. (2020) The Law of Commerce in South Africa. Third Edition. South Africa: Oxford
University Press. Unit 3, 4 and 5 of module guide.
Journal(s)
Coleman, T.E. (2021) ‘Reflecting on the Role and Impact of the Constitutional Value of uBuntu on
the Concept of Contractual Freedom and Autonomy in South Africa’, Potchefstroom Electronic
Law Journal/Potchefstroomse Elektroniese Regsblad, 24(1)
Website(s)
Jefferson, M. (2020) Employment law update – Unfair labour practice in relation to a promotion.
Available at: https://www.derebus.org.za/employment-law-update-unfair-labour-practice-in-
relation-to-a-promotion/ (Accessed: 13 April 2022)
Legalwise (2022) Introduction to SA Law. Available at https://www.legalwise.co.za/help-
yourself/quicklaw-guides/introduction-sa-law (Accessed: 13 April 2022)
Moola, M. (2020) COVID-19: Force majeure and the effect it has on rental contracts. Available at:
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https://www.derebus.org.za/covid-19-force-majeure-and-the-effect-it-has-on-rental-contracts/
(Accessed: 13 April 2022)
Somo, T. (2020) Full disclosure – the materiality test for insurance explained. Available at:
https://www.derebus.org.za/full-disclosure-the-materiality-test-for-insurance-explained/
(Accessed: 13 April 2022)
G. Special Features
In the Module Guide, you will find the following icons together with a description. These are designed to
help you study. It is imperative that you work through them as they also provide guidelines for
examination purposes.
~~~~~~~~~~~~~~
Special Feature Icon Description
The Learning Outcomes indicate what aspects of the particular

LEARNING
Unit you have to master and demonstrate that you have
OUTCOMES
mastered them.
The Associated Assessment Criteria is the evaluation of student

ASSOCIATED
understanding with respect to agreed-upon outcomes. The
ASSESSMENT
Criteria set the standard for the successful demonstration of the
CRITERIA
understanding of a concept or skill.
A think point asks you to stop and think about an issue.

THINK POINT Sometimes you are asked to apply a concept to your own
experience or to think of an example.
You may come across activities that ask you to carry out specific
tasks. In most cases, there are no right or wrong answers to
ACTIVITY
these activities. The aim of the activities is to give you an
opportunity to apply what you have learned.
At this point, you should read the reference supplied. If you are
unable to acquire the suggested readings, then you are
READINGS
welcome to consult any current source that deals with the
subject. This constitutes research.
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PRACTICAL
Real examples or cases will be discussed to enhance
APPLICATION
understanding of this Module Guide.
OR EXAMPLES
You may come across knowledge check questions at the end of

KNOWLEDGE
each Unit in the form of Multiple-choice questions (MCQ’s) that
CHECK
will test your knowledge. You should refer to the module for the
QUESTIONS
answers or your textbook(s).
You may come across self-assessment questions that test your

REVISION understanding of what you have learned so far. These may be
QUESTIONS attempted with the aid of your textbooks, journal articles and
Module Guide.
Case studies are included in different sections in this module

CASE STUDY guide. This activity provides students with the opportunity to
apply theory to practice.
VIDEO You may come across links to videos as well as instructions on

ACTIVITY activities to attend to after watching the video.
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Unit
1: Introduction to
Business Law
Unit 1: Introduction to Business L a w
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Unit Learning Outcomes
Prescribed and Recommended Textbooks/Readings
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape
Town: Oxford University Press.
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law
of Sale and Lease. Eighth Edition. Durban: LexisNexis.
Du Plessis, J.V. and Fouche´, M.A. (2019). A Practical Guide to Labour

Law. Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
Hutchison, D., Pretorius, C.J. and Naude´, T. (2022). The Law of

Contract in South Africa. Fourth Edition. Cape Town: Oxford University
Press.
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third

Edition. South Africa: Oxford University Press. Unit 3, 4 and 5 of module
guide.
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1.1 The Relevance of Law

The law can be said to be a control mechanism which regulates various structures in society namely;
political, economic and social relations. Due to the fact that people are in constant interaction, conflict
will invariably arise; and the need to resolve and regulate such conflicts arises as well. The law
therefore provides a legitimate authority for such control through State structures.
The law goes further to standardize what is acceptable behaviour and what is not. By standardising
behaviour, citizens are given a clear understanding of what they are required to do (duties), what
they may do (rights) and what they must not do (offences).
With the advent of the global market and international trade, there has been the development of
‘International Law’ to set a standard of acceptable economic standards across borders irrespective of
the law of individual countries. Thus to participate and profit from international trade, countries are
bound by the standards of the international community.
In most communities, people are constantly engaged in commercial activity and business
transactions, which need to be regulated. Such transactions may in itself incorporate contractual law
dealing with other related areas of law.
1.2 A Brief History of South African Law

A historical overview is important to understand the origins of the South African legal system. Current
South African law is a unique mixture of imported legal systems, often referred to as a hybrid system
of law, and has some of its roots in Roman law, Roman-Dutch law and English law. Before the first
European settlers arrived in South Africa, the indigenous people of this country had developed their
own system of law to govern relationships in their society. Gibson (2003: 5) refers to this as
customary law (Gibson 2003:5).
When Dutch settlers arrived in the Cape from 1652 onwards, they implemented legal practices from
their indigenous Holland. This is referred to as Roman-Dutch law. The law of Holland was founded
on Roman law and interpreted and adapted by Dutch lawmakers. The Roman empire, which had a
highly developed legal system, had dominated much of Europe for many centuries (Gibson
2003:5). Roman-Dutch law was the official law of the Cape until the British took over the governance
of the Cape in the early 1800’s and introduced parts of their English law. Over time, laws have had to
change in order to cater for the increasing complexities and changes of modern society. The South
African courts adapted the various rules and principles of these different legal systems to meet local
needs and situations (Gibson 2003:5).
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1.3 Fundamental Concepts

1.3.1 Law
The law can be said to be a set of rules governing human interaction and which is recognised,
endorsed and enforced by the State. These said rules specify acceptable and unacceptable
behaviour of the citizens of a country and the consequences for failure to adhere to such rules.
1.3.2 The State

The South African State consists of three structures or branches, namely:
The Executive
The Legislature
The Judiciary
The Executive is tasked with implementing the laws made by Parliament and is made up of the
President, ministers and deputy ministers.
The Legislature (also known as Parliament) is tasked with making the law which takes the form of
legislation. Parliament is made up of the National Assembly and the National Council of Provinces.
Parliament promulgates law by passing Acts of Parliament (also known as statutes). Rules and
regulations pertaining to the implementation of such law is generally delegated to ministers of each
province.
The Judiciary is tasked with hearing and deciding upon legal disputes. These may include disputes
between private individuals or between private individuals and the State itself. The judiciary is made
up of the:
Constitutional Court
Supreme Court of Appeal
High Court
Magistrates Court
There are also specialist courts, which deal exclusively with particular issues such as the
Maintenance Court or the Equality Court. The judiciary has the power to interpret the law, apply the
law and develop the law when necessary. Furthermore, by the virtue of the stare decisis doctrine,
lower courts are bound by the decisions of higher courts; it is thus argued by some that, courts also
have the power to make laws.
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Think Point 1.3

Explain the three structures and branches in South African and why, in
your opinion are these structures important.
1.3.3 Rule of Law

The law aims to promote societal justice. The concept of justice incorporates many principles such as
the reasonableness of a law, consistent application of the law and transparency of the law-makers.
The principle which has been most emphasized, however, is that no one is above the law.
In a state that is governed by the rule of law, the exercise of state power must be based on the
established principles of law and the founding document of such a state (usually the Constitution).
The Constitution (Act 108 of 1996) sets the underlying values of the law (Bill of Rights) and
constraints on state power. The rule of law ultimately seeks to prevent the abuse of power or state
authorities acting ultra vires.
Pharmaceutical Manufacturers Association of SA, in re: Ex Parte Application of President of

Republic of SA 2000 3 BCLR 241 (CC), Chaskalson P stated that the ‘requirement of the rule of law
that the exercise of public power by the executive and other functionaries should not be arbitrary.
Decisions must be rationally related to the purpose for which the power was given, otherwise they
are in effect arbitrary and inconsistent.
1.4 Legal Relationships

1.4.1 Public Legal Relationships
Public legal relationships deal primarily with state power and/ or departments and their capacity to
govern certain aspects of society. This power is derived from the law and may take various forms
such as a directive or the issuing and revoking of licenses.
1.4.2 Private Legal Relationships

Private legal relationships are governed by the individual rights and duties of parties. Whilst state
power does not usually play a role in such relationships, the content of such rights and duties does,
however, derive its effect from the law.
Rights and duties always relate to a legal object. The following classes of legal objects have been
crystallised in South African law and thus are able to give rise to corresponding rights and duties.
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Corporeal Property (movable or immovable property)

Incorporeal Property (property that cannot be seen)
Intellectual Property (property of the mind, design or creation)
Performance or exchange of services (skills provided)
Personality qualities (unique to natural persons)
With regard to legal relationships, parties may enforce their rights against each other. When dealing
with the enforcement of rights and the consequences of the infringement of such rights, it becomes
important to distinguish between the two types of legal rights one may possess.
Firstly, there are ‘real rights’ which relate to corporeal property and may be enforced against anyone.
For example, a man has a real right of ownership over his car. Should B Damage A’s car, a will have
a right against B to pay for such damage.
Secondly, there are ‘personal rights’ which relate to the conduct, behaviour or performance by
another legal entity. These rights may only be enforced against that particular legal entity. For
example, a has the right to a good reputation, however, B has published untrue and nasty comment
about A on Facebook. A may has a personal right against B to remove such comments or to pay
damages.
Activity 1.1
1. Distinguish between Public and Private Relationships and provide an

example.
2. There are five classes of legal objects form in South African Law. Illustrate
and explain these classes by providing examples to substantiate your answer.
1.5 Types of Legal Right(s)

a) Real Rights
Real rights are rights to material, physical things such as a car or pen-etc. Although the object of a
real right will always be a thing; the real rights themselves would be called upon or infringed upon,
for example, rights of ownership, rights of pledge, and rights of servitude. The powers we may
exercise on these rights make up the content of a right. eg. Ownership – The owner of a property
may do with it what he/she wants, the owner can alienate it (sell or give away), or destroy it, or
occupy it, etc.
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b) Personal Rights
A personal right is a right of performance and is also referred to as a claim. When speaking of
performance, we are referring to action i.e. doing or not doing something.
c) Characteristics of Real Rights

Characteristics of real rights and personal rights as identified by Willie (2007: 430)
(i) The object of a real right is a corporeal thing. A corporeal thing is a tangible object like a book or a
pen.
(ii) A real right affords a direct power over the object. This means that the owner of a real right can
exert direct influence on the object.
(iii) Real rights are absolute and afford the right of hot pursuit. This means that there is an
indeterminate number of persons who are obligated not to obstruct the exercise of the subject’s right.
Real rights are enforceable against any legal subject in the world who may be in possession of the
object.
(iv) Real rights do not lapse when the holder dies.
(v) Real rights afford a right of preference in the event of insolvency. This means that where the
owner of the object is insolvent, the holder of the right has a preferential right to the proceeds from
the sale of the object.
(vi) Real rights flow from juristic acts like the transfer of property, cession and occupation. This
means that real rights cannot be established by mere agreement between two contracting parties.
d) Characteristics of Personal Rights

(i) The objects of a personal right are personal security, bodily integrity or freedom.
(ii) Personal rights are not absolute rights. This means that they are only enforceable against a
specific person and not against the whole world.
(iii) Personal rights lapse when the holder dies.
(iv) Personal rights flow from contract or from a delict. A delict occurs when one party commits a
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wrong against another. The basic elements of delict are conduct, wrongfulness, fault, causation and
damage.
Table 1: Real Rights and Personal Rights
1.6 Legal Liability

Liability, basically refers to an obligation or duty to do something. Legal liability may arise both in
public and private relationships.
In public relationships, the most common example arises in the context of criminal law. For example,
everyone has a legal duty to show reasonable care when driving on public roads. If you fail such duty
by driving negligently, you will be committing a crime and face a fine or imprisonment. In criminal
cases, the State is always the party prosecuting the matter on behalf of public interest or the values
of society (bona mores).
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In private relationships liability will arise in the following instances:
Liability created by means of a contract – when a party enters into a contract, he is obligated
to fulfil his duties as set out by such contract. Should he fail to do so, the aggrieved party may
enforce the contract or performance thereof, by means of legal proceedings
Liability created by means of the law of delict – there are standards set in society for the
protection of an individual’s property (be it physical property or personality rights). Should one
infringe another’s right to enjoy his property in a manner that is legally accepted as being wrong,
intentional and blameworthy, that person will be liable for the loss suffered
Liability based on the concept of unjustified enrichment – this relates to legal action instituted
by one party against another on the basis that he/she has without cause and at the expense of
someone else, gained some kind of benefit
In summation, personal liability cases will lead to civil proceedings being instituted and the parties
referred to as the Plaintiff and Defendant. In public liability cases, criminal proceedings will be
instituted and the parties are referred to as the State and the Accused.
1.7 Sources of Law

There are six authoritative sources of South African law (these have to be followed by courts):
The Constitution
Common Law
Legislation
Judicial Precedent
Custom
Customary Law (some include this source in the common law)
There are also persuasive sources of South African law (they are not compulsory for the courts),
such as obiter dicta, international law, decisions of foreign courts or international courts, academic
writings, etc.
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Figure 1.1: Hierarchy of Sources
i. Constitution
The Constitution (Act 108 of 1996,) is the supreme law of the country. Whilst it looks like any other
piece of legislation, the Constitution binds the state and all its structures including the legislature, the
executive and the judiciary. There are various values and rights contained in the Constitution that
provides a basis for all other law; every law in South Africa is subject to standards of the Constitution
and if it is found to be inconsistent it will be declared invalid. Furthermore, the Constitution directs the
manner in which the state should conduct its activities and the limitations that may be imposed on the
rights contained in the Bill of Rights. There are a few rights that are relevant to the discussion of
commercial activity.
Table 1: Theories of Contract
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ii. Legislation
Legislation is passed for various reasons: to supersede common law; to bring clarity to something
which is disputed or not clear according to the common law; to create exceptions form common
law. In researching a legal issue, it is necessary to refer first to legislation; if the legislation does not
deal with the issue of interest, the researcher should refer to the common law.
Legislation is a set of binding rules set down by the Legislature. There are two types of legislation,
the first primary legislation which is made by original authorities empowered to do so (provincial
legislatures) and delegated legislation which is made by subordinate authorities (regulations by
municipal councils).
Figure 1.2: Process for making Primary and Secondary Legislation
Legislation specifically relating to commercial activity:
Table 1.3: Most Important National Statues Applicable to Commercial Activity
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iii. Judicial Precedent

Precedent is based on the doctrine of stare decisis (to stand by previous decisions), whereby the
decisions of a high court (Constitutional Court, Supreme Court of Appeal and High Courts) on a
particular issue will be binding on all lower courts. This decision may change the law, repeal it or
invalidate it. Though the facts before a judge may differ to that of another case, the reason for the
decision taken (ratio) is a principle of law and must be taken into account. There are also instances
whereby the decision of a case will only be used as a guideline or persuasive authority by another
court.
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iv. Common Law

During the colonisation of South Africa, both English and Roman-Dutch laws were applied and a
hybrid system of law developed. The English dealt predominantly with the law of insurance, the law
of evidence and the law of negotiable instruments. This was a long time ago and since then; a great
deal of legislation has been promulgated to deal with various legal issues. However, there are
principles of law (common law) that are still currently applicable in the South African legal system.
Therefore, where statute is silent on a particular, the principles of common law will apply by default. It
must be also borne in mind that with the introduction of the Constitution, any common law that is
inconsistent with the values and spirit of the Constitution must be developed by the judiciary.
v. Custom
The customs of a community and the manner in which they have been applied in the past will be
taken into consideration by the courts. Custom will acquire the force and effect of law if it can be
proven that the custom is substantially established, definite, reasonable and observed by the said
community.
vi. Customary Law

Before the Constitution, customary law was not formally recognised as a part of the formal common
law of South Africa. Currently it is recognised as such by the Constitution. Unit 39 of the Constitution
states however that the customary rules have to comply with the Bill of Rights. Customary law
relates to custom of a specific ethnic group. Persons belonging to such a group may elect to observe
such laws and upon request, these laws may be enforced by the court.
vii. Foreign Law

Foreign law refers to the laws applied in other countries. These laws are not binding in South Africa
but the judiciary must consider such laws when interpreting provisions of the Constitution. Therefore,
it can be said that foreign law only has the effect of persuasive authority.
Reading
Read Chapter 1:
Humby, T. (2014) Introduction to the South African Legal System. (In:
Scott, J.et al. The Law of Commerce in South Africa. Second Edition.
Cape Town: Oxford University Press. P 1-34
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1.8 The Law and Commercial Activity

1.8.1. Law articulates minimum standards
In South Africa, the Constitution, which is the supreme source of law, underpins all other laws. Any
law that is found to be in conflict with the Constitution is deemed to be invalid and unenforceable.
The rights and values enshrined in the Constitution apply equally to laws that specifically regulate
commercial activity; irrespective of whether such laws take the form of statute or common law.
1.8.2. Law recognises different kinds of property

The law recognises two types of property namely: Corporeal and Incorporeal Property.
Corporeal Property refers to things that can be physically touched for example, a car or a plot of
land.
Incorporeal Property refers to things that cannot be seen or touched for example, trademarks or
shares in a company.
The law stipulates how property may be acquired, the rights attached to certain types of property,
remedies for damage to property and how property may be traded.
1.8.3. Law facilitates and upholds business agreements

There are various types of agreements that may be entered into by parties engaging in commercial
activity. These agreements may take the form of:
Contracts of Purchase and Sale

Contracts of Employment
Contracts of Agency
Contracts of Lease
Contracts of Security and
Contracts of Insurance
The law prescribes the circumstances in which these contracts will come into being, the formalities
and essential elements of such contracts and the remedies for the breach of such contracts.
1.8.4. Law is the foundation of corporate activity

The law recognises two types of entities that may be afforded legal personality (ability to acquire
assets, contract, incur debts, sue and be sued). The first entity is known as a ‘natural person’ and
includes human beings with the capacity to enter into legal transactions. The second entity is a
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‘juristic person’ which despite not being a human being it has its own separate legal personality e.g.
A company.
1.8.5. Law legitimises state regulation of commercial activity

The State has the inherent power to promulgate laws to regulate certain areas of society and to
administer such laws through various governmental departments. The State has the corresponding
duty to administer such laws reasonably and justly. Apart from creating laws, the State may regulate
commercial activity by making regulations governing commercial activity. The State may also
regulate commercial activity with the specific intent of addressing certain social issues, such as
previously disadvantaged groups and empowerment programs or with the intent of creating revenue
for other social needs of the country.
1.8.6. Law provides an authoritative mode of dispute resolution

There are various conflicts that may arise in the commercial arena involving different legal entities
and issues. The law prescribes how these conflicts are to be addressed and by whom. The most
used mechanism is the judiciary whereby an impartial magistrate or judge considers the matter
taking the various factors into account. A decision is made, also known as an order of court, and is
binding on all the interested parties.
Revision Questions
1. Explain 'legal liability'.

2. Explain the difference between a right and duty.
3. Explain 'real rights'.
4. Explain 'personal rights'.
5. Explain if Standard Bank is a natural or juristic person.
6. A bouncer at a club assaulted Edward. Explain which right was violated –
his real right or his personal right.
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Unit
2:
The Law of Contract
Unit 2: The Law of Contract
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Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.


Press.

guide.
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2.1 Introduction
A contract is an agreement entered into by parties with the purpose of creating legal rights and
duties that may be enforced by a court. There are no formalities for entering into a contract however
there are CERTAIN requirements (essentialia) that must be satisfied before a contract may be
considered valid and enforceable. These requirements include:
The agreement must be lawful

The contracting parties must have capacity to contract
The contracting parties must seriously intend to contract
The contracting parties must communicate their intentions to each other
The agreement must be sufficiently certain in its terms
The contracting parties must be of the same mind as to the subject matter
The contract must be possible to perform
The agreement must comply with any formalities required for that type of contract
2.2 Nature of a Contract

A contract is an agreement accepted by the law and which creates legal rights and duties for the
parties to the contract. A contract usually encompasses a commitment by the parties to perform or
refrain from performing a specific act at a specified time. A contract may also be based on an
assurance by a party that a certain set of circumstances exist, have existed or will come into being in
the future.
Parties to a contract usually fulfil their obligations on the basis of reciprocity, that is, the performance
of one party is contingent on the performance of the other party. Contracts may be concluded either
in writing, verbally or tacitly. In terms of South African contractual law, the principle of the ‘freedom of
contract’ plays a significant role. This principle asserts that contracting parties may agree to almost
anything to the extent that such contractual terms are lawful, possible and are in line with values or
interests (boni mores) of society.
Think Point 2.1

Paul is a drug lord. He enters into a contract with James to sell drugs for
him. Explain if the contract would still be valid although it is illegal.
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2.3 Consensus
Consensus is one of the requirements of a valid contract. A contract is considered to come into
existence when parties reach agreement or there is a ‘meeting of the minds’ on the essential terms
of the contract. Parties are required to declare their intention in a clear and explicit manner. The
manner in which the parties declare such intention may vary and may be written, verbal or both.
2.3.1. The Offer
The offer is a proposal by one party (offeror) to another (offeree), specifying the performance he
is willing to make and conditions upon which such performance is tendered
An offer may address a specific person, a particular group or the public at large
The offer must be communicated to the offeree
The offer may be withdrawn any time before it has been accepted by the offerree
If the offeror does not stipulate a time period for which the offer will lapse, the offer will lapse after
a reasonable period of time
The offer will terminate upon the death of either party or upon rejection of the offer
Requirements for a valid offer
The offer must be firm – the offer must denote a serious intention to do business
The offer must be complete – there should not be further issue or arrangements that need to be
decided upon
The offer must be clear and certain – the offer should not be ambiguous. If the contract is
ambiguous, the courts will use rules of interpretation to determine the intention of the contracting
parties however parties should endeavour to avoid such ambiguity
The Consumer Protection Act 68 of 2008 introduces further requirements for a valid offer:
The offer must be made in an understandable language

The offer must disclose whether the goods have reconditioned or rebuilt
Negative marketing is prohibited – suppliers/offerors may not promote a product on the basis that
an agreement will come into existence unless it is rejected
Consumers have the right to a cooling-off period if goods are marketed to them directly
2.3.2. Acceptance
Acceptance of an offer is a clear and unequivocal declaration of intention by the offeree to accept the
offer and be bound by it. Like the offer, the acceptance may be written, verbal or tacit.
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Requirements for a valid acceptance
The acceptance must be unqualified – the offeree must agree to all terms and conditions of the
offer. An acceptance that is conditional is deemed to be a counter-offer
The offer must be accepted by the offeree – unless the offer was made to the public at large. In
instances where it was made to a specific person, only that person may accept it
The acceptance must be a conscious act on the part of the offeree
The acceptance must be in the form prescribed by the offeror
There is often the situation whereby parties enter into an ancillary agreement regarding the main
agreement that may be concluded in the future. This ancillary agreement may take the form of an
‘option’ or a ‘preference contract’.
An option is an agreement limiting the offeror’s right to withdraw his offer for a certain period of time.
A preference contract is whereby one person undertakes to provide the other with a preference to
contract with him in the event that he decides to enter in a particular contract (there is no stipulated
time period).
In principle, there is no contract if the parties are not in agreement regarding the material terms of
their agreement. Where the parties lack consensus their contract is void for ‘mistake’ (error). We will
now discuss the concept of mistake in a contract.
2.3.3 Mistakes
There are instances where there is no subjective consensus between the parties due to some
material mistake by one or both of the parties. If there is no actual agreement, the contract may be
rendered void or voidable at the election of the injured party. With regard to the law of contract, the
term mistake has a restricted meaning and over time the courts have identified the types of mistakes
that may lead to dissensus.
a) Types of Mistakes
(i) Mistake of Law
The general rule is that ignorance of the law is not an excuse and will not affect the validity of a
contract.
(ii) Mistake in Expression

The general rule is caveat subscriptor (let the signer beware). There is a duty on a contracting party
to read the contents of the contract. It will be deemed that he has read and understood the contract.
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(iii) Mistake in Motive

A mistake in motive will not invalidate a contract and due to the sanctity of contracts, the contract will
be upheld even if the contracting party has changed his mind.
(iv) Mistake of Fact

A mistake in fact will render a contract void. A mistake of fact will render the contract void if the
mistake was both reasonable and material.
The mistake may relate to various aspects of the contract namely;
The nature of the contract

The identity of the subject matter
The attributes of the subject matter or
The identity of the contracting parties
There are also different types of mistake of fact:
Common mistake of fact – both parties have made the same mistake
Mutual mistake of fact – both parties made a different mistake
Unilateral mistake of fact – one of the contracting parties has made a mistake
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Table 2.1: Materiality Determined By Type of Mistake
2.3.4. Misrepresentation
Misrepresentation occurs where a false statement of fact is made by one person to another, before
or at the time of the contract, of some matter or circumstance relating to the contract, with the
intention of inducing the latter to contract, and which actually induces him to do so (Scott et al.,
2009:94).
Generally contracting parties will negotiate terms and conditions of the contract before actually
concluding the contract. During such negotiations it is quite possible that statements made are
factually untrue. Misrepresentation is thus a false statement of fact or a false statement regarding a
certain state of affairs accompanied with an intention to induce the other party to contract. If a party
has been induced into contracting on the basis of a misrepresentation of a material aspect of the
contract, the contract will be rendered voidable.
The injured party is entitled to cancel the contract and claim restitution if the following four
requirements can be proved:
There was misrepresentation by the other party

This misrepresentation induced the injured party into contracting
There was an intention to induce the injured party to contract; and
The misrepresentation related to a material aspect of the contract
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Think Point 2.2

Jade offers to sell her ‘genuine leather’ jacket to Sue. (Jade thinks it is
unlikely to be leather as she bought it from a flea market). She stresses to
Sue that it is made of pure Italian leather and was bought in a boutique in
Milan. (She knows that Sue is mad about Italian fashion and design). Sue
told Jade she will only buy a genuine leather jacket as she has had bad
experiences with pseudo leather in the past. Sue does not have time to
shop around and it is summer in South Africa so she cannot find many
leather jackets. She buys the jacket from Jade.
Explain if the contract is voidable.
2.3.5 Duress
If a person is induced into contracting due to violence, threat or fear then there is no legitimate
consensus between the parties. The contract will be voidable at the election of the aggrieved party.
The following requirements must be proved by the party who wishes to set the contract aside. Each
one of these requirements must be proved.
There must be actual violence or damage or a threat of violence or damage directed at the life,
limb or freedom of the threatened person, or his or her property, which causes a reasonable fear
that the threat may be executed
If duress is caused by a threat, the threat must be imminent (about to occur) or inevitable (so that
the victim cannot escape)
The duress must be unlawful. This means that that the party exercising it uses it to obtain some
benefit he or she would otherwise not have obtained
A party to the contract or someone acting on his or her behalf must be responsible for the duress
The duress must cause the victim to conclude the contract. This requirement will not be met if the
threat has been removed and the victim freely enters into the contract anyway, or if the victim
ratifies the contract (confirms its validity with retrospective effect). This requirement is also met if
the party placed under duress concludes the contract or concludes it on particular terms he or
she may not have accepted but if it was not for the duress. See Broodryk v Smuts NO 1942 TPD
47.
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2.3.6 Undue Influence

Undue influence renders a contract voidable. Undue influence is similar to duress in that an improper
pressure is exerted on the one party with the intention of inducing that party to enter into a contract.
The distinction between duress and the undue influence is that the improper pressure inflicted may
not be overtly illegal or necessarily take the form of threat or intimidation.
The following requirements must be satisfied to establish undue influence:
The defendant obtained an influence over the Plaintiff

Such influence decreased his resistance
The Defendant exercised his influence in a corrupt manner which induced him to contract on
terms and conditions that were prejudicial to him
Refer to Patel v Grobbelaar 1974 (1) SA 532 (A).

Preller v Jordaan 1956 (1) SA 483 (A).
2.4 Capacity
Capacity to act must be distinguished from legal capacity. Capacity to act refers to the capacity to
perform juristic acts, conclude contracts and participate in legal dealings (Havenga). Capacity refers
to the party’s legal ability to enter into a contract. Capacity determines whether a legal subject may
enter into binding contracts, and whether such person can sue and be sued in his or her own name.
In other words, it refers to competence in the eyes of the law. It is deemed that every natural person
has contractual capacity until otherwise is proven. A person’s legal status will directly influence his
capacity to contract. Thus, natural persons can be categorised as:
Those with no capacity

Those who have limited capacity
Those with full capacity
2.4.1 Persons who completely lack contractual capacity

Persons with mental illness or defects and who are unable to understand the nature and
consequences of their actions will not have contractual capacity. Minors (under the age of 7 years)
are considered to lack the mental maturity to appreciate the consequences of their actions and
therefore cannot enter into contracts on their own. Where it is alleged that a person lacks contractual
capacity, the onus of proof rests on the person making the allegation.
A person who lacks contractual capacity may only acquire rights and duties if a contract has been
entered into on his behalf and endorsed by a court of law. Intoxication may preclude contractual
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capacity to the extent that it impairs a person’s ability to appreciate the nature and consequences of
his actions. Where a person is found to lack contractual capacity, unless otherwise assisted, the
contract entered into will be deemed void. Refer to The Mental Health Care Act 17 of 2002.
2.4.2 Persons with limited contractual capacity

The general rule is that those with limited contractual capacity will only acquire contractual rights and
duties if they have been assisted by someone with contractual capacity or obtained the necessary
consent to contract.
Minors
A minor is a person who is 18 years old and unmarried. A minor below the age of 7 years has no
capacity to contract. Minors between the ages of 7 and 18 years have limited capacity to contract;
generally, minors are required to obtain consent and assistance from their parent or guardian before
contractual rights and duties will accrue to them. However, a minor may, without the necessary
consent or assistance, enter into a contract. In this instance the minor will only acquire rights and no
duties. Instead of providing assistance or consent, the guardian may personally enter into contracts
on behalf of the minor. The rights and duties will accrue to the minor irrespective of his consent or
knowledge to such contract. The minor may be able to escape liability in such contracts if he can
show that the contract was entered into by his parent or guardian unreasonably. The court may, in
this instance, order the restitution of the both parties.
When a major reaches the age of majority, he may elect to repudiate or ratify any contract entered to
whilst he was a minor. The ratification will then deem the contract to have been valid as at the date
entered into. Where a minor has contracted without the necessary consent or assistance, the
contract will not be enforceable against him and will be void. The contract may be enforced against
the other contracting party provided that the minor is willing to adhere to his own obligations; if the
minor is unwilling, he must return any benefit already received. If the benefit cannot be returned for
whatever reason, the other party may have an action for unjustified enrichment.
Lastly, if the minor fraudulently misleads the other contracting party into believing that he has the
necessary capacity to contract, the aggrieved party may institute delictual action against the minor.
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Think Point 2.3

This means that if a minor buys a motorbike, and then wishes to get out of
the contract, the minor gets back all the money, and must give back the
bike. If the bike was subsequently stolen or destroyed, then the minor
does not have to give back anything. He will still get all his money.
Explain if this is fair.
Married Persons
With regard to married persons, a distinction is made between those who have married in community
of property and those who married out of community of property. Firstly, spouses married out of
community have separate estates and their contractual capacity is unaffected. Secondly, spouses
married in community of property have a joint estate and administer their marital property jointly.
Each spouse has the equal contractual capacity and may bind the joint estate on behalf of their
spouse. There are also certain types of contracts that require the consent of both spouses such as
suretyships. Where a spouse contracts without the requisite consent and where the other contracting
party was unaware that such consent was required and could not have reasonably known, the joint
estate will still be bound. Refer to the Matrimonial Property Act 88 of 1984.
Insolvent Persons
An insolvent person is a person whose liabilities exceed his/her assets. In such instance, the estate
of such person is sequestrated.Sequestration refers to the surrendering of the insolvent estate
through a court process. Once a court has granted an order declaring a person to be insolvent, his
contractual capacity is limited. Once the process of sequestration begins, the estate of the insolvent
vests with the trustee. The function of the trustee is to administer the estate according to the law of
insolvency. The trustee may enter into contracts on behalf of the insolvent and the insolvent will
require the trustee’s consent for any juristic act that may impact the estate negatively e.g. disposing
of estate assets.
Prodigals
A prodigal is a person who squanders his assets irresponsibly and such squandering has the result
of jeopardising the welfare of himself or his dependants. Such a person, upon application by an
interested party, may be declared a prodigal and his capacity to enter into juristic acts is limited. A
High Court may appoint a curator to a prodigal. The curator will administer the prodigal's affairs, and
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contract on their behalf. The prodigal will require consent from the curator of his estate to conclude
contracts. Contracts entered into without the necessary consent may be ratified by the curator at a
later stage therefore the contracts in this instance are merely voidable and not void.
Juristic Persons
A juristic person has full capacity to enter into contracts and perform juristic acts. The rights and
extent of such rights are determined by its founding documents (the rights of a company will be
regulated by the memorandum of association).
2.5 Certainty
When entering into contracts, parties must ensure that the terms and conditions are clear and
unambiguous. The intention of the parties must be reflected in the contract. In the event of a dispute
arising between the parties, the court is tasked with considering the contract without recourse to
other evidence (parol evidence rule). A contract may be invalidated on the grounds that it is vague
and uncertain.
2.6 Lawfulness
With regard to the lawfulness of contracts, the courts are constantly faced with the competing
interests of society. On one hand, there is a need to uphold contracts that are freely and voluntarily
entered into by private individuals. On the other hand, the courts need to take into account the
interests and values of society at large. Therefore, when dealing with lawfulness, courts endeavour
to balance public policy as well as the principle of the sanctity of contracts.
As a general rule, all contracts are deemed to be lawful; a contract may be unlawful if it contravenes
a statute or the common law.
In the event that a contract infringes a statutory provision, the contract will not necessarily be
rendered void. In each such case, the court will consider the intention of the legislature in
promulgating the Statute and the intended consequences of non-compliance with the Statute. In
doing so, the court will consider the scope, language and objects of the Act. The court will generally
declare a contract void if enforcing such an agreement would defeat the purposes of the legislation.
If, after considering the competing interests of the parties of the contracts and that of society at large,
the court finds that the contract is against public policy; the court will declare the contract void and
unenforceable.
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2.7 Possibility of Performance

Possibility of performance is the seventh requirement for a valid contract. A contract is considered to
be void and unenforceable if, at the time it was entered into, its performance was impossible.
Objective impossibility is when the contract is impossible for anyone in the world to perform. The
contract is subjectively impossible when it cannot be performed by only the contracting party.
Subjective impossibility does NOT render the contract void; nor is the contract void if such
impossibility was within the contemplation of the parties (Scott et al., 2009:99).
Impossibility may be due to vis majore or causus fortuitus. Vis majore refers to acts of nature, or acts
of God. For example, it is not possible to deliver a car to a client in another town on the agreed date if
there is an earthquake.
Causus fortuitus refers to inevitable acts of an irresistible force such as acts of the state or
government, death, or plague. It would not be possible to complete a contract to resurface the roads
if a civil war broke out in the streets (Scott et al., 2009:99).
There can be no contract if the contract is not physically capable of being possible when the contract
is made. Contracts are void if performance is objectively impossible at inception, or may be void if it
becomes impossible to perform. For example, it is not possible for someone to agree to stay awake
for twelve days in order to complete a job.
Supervening impossibility may only be operative, this means that it makes the contract void, if it
arises by an act of God (vis majore), or act of the state, or an irresistible force beyond the control of
either party (causus fortuitus).
Contracts will remain binding if the impossibility arises due to deliberate or negligent acts of one of
the parties. A contract may be voidable where performance becomes impossible only after the
contract was entered into.
2.8 Formalities
This is the final requirement for a valid contract. Most contracts do not require formalities, as long as
their intentions are clearly communicated; verbally, in writing or by conduct. Some contracts,
however, require certain formalities as laid down by Statute.
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2.9 Interpretation of Contracts

As discussed above, there may be instances where a court is called upon to make a decision on the
intention of the parties to a contract. This is usually the case where parties dispute the true meaning
of the contract and require objective adjudication. The court will be guided by the crystallised rules
and presumptions relating to contractual interpretation.
a) Express Terms
These terms are usually stated either verbally or in writing. It is generally accepted that such terms
denote their ordinary meaning without requiring any interpretation. Explicit terms may also be
incorporated into contracts by means of reference to them.
b) Tacit Terms
These terms are imputed into the contract by considering the circumstances of the parties at the time
of contracting. The parties may agree, in retrospect, that they intended certain terms to form part of
the contract. These terms will then be read into the contract. Parties may have merely forgotten to
include these terms into the contract or may have been under the impression that such terms were
so vital to the contract that they need not necessarily be written down. The courts will only read a
term into a contract if it accords with the intention of the contracting parties or if by considering the
language of the parties in the contract as a whole, such a term should be incorporated.
Refer to Consol Ltd t/a Consol Glass v Tweee Jonger Gezellen (Pty) Ltd and another 2005 (6) SA 1
(SCA)
c) Implied Terms
Irrespective of the subjective consensus between the parties, there are certain terms that will be read
into the contract as they are terms which are imposed by the law, custom or trade usage. Due to the
principle of the freedom to contract, the courts will only impute a term into a contract, by operation of
law or custom or trade usage; if it is certain, clear, long established and does not conflict with the
other express terms of the contract.
2.10 Conditional Contracts

There are instances when parties require a contract to become enforceable only upon the
occurrence or non-occurrence of a specified uncertain future event. Parties may include certain
conditions into the contract that will allow them to perform on the contract at a time they both agree
on. There are two types of conditions:
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a) Suspensive Conditions
The performance of the contract is delayed until an agreed uncertain specified future event occurs. If
the event occurs, the parties are required to perform their obligations. If the event does not take
place, the contract does not become enforceable against the parties. However, parties may further
require that the uncertain specified event must occur by a particular date, if not, the contract will
lapse.
For example, Mavis offers to sell her lounge suite to Joyce for R1000.00 and Joyce agrees to pay for
the lounge suite in monthly payments of R100.00 each for ten months. Mavis adds a suspensive
condition to the contract of sale. Mavis states that although Joyce can take the lounge suite and use
it, the ownership of the lounge suite will stay with Mavis and only pass to Joyce on condition that the
last R100.00 payments is made. This will mean that the contract of sale will be suspended, and not
be complete, until Joyce fulfils the suspensive condition and makes the last payment.
b) Resolutive Conditions
With resolutive conditions, the performance of the parties is enforceable until an uncertain specified
future event. If the event occurs, the contract is void retrospectively.
For example, if Mavis sells her lounge suite to Joyce for R1000.00 and adds a resolutive condition
that Joyce must pay the full amount by the end of the month. If Joyce has not paid the full price by
the end of the month, the contract is ended and Mavis can take the lounge suite back.
If either party intentionally prevents a condition from being fulfilled, the courts will apply the doctrine
of the fictional fulfilment and the condition will be considered to have been fulfilled by the parties.
2.11 Special Clauses Commonly Found in Contracts

The following clauses are commonly found in contracts:
Indemnity clause – a term which may exclude a party to the contract from incurring liability in
certain instances
Non-variation clause – a term of a contract may not be changed without the written consent of
both parties
Cancellation clause – this prescribes the manner in which the contract may be terminated at the
instance of the parties
Domicilium citandi executandi – the parties may agree on the addresses at which they will
accept receipt of any legal documents. The parties will be considered to have received all
documents sent to this address
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Jurisdiction – the parties may agree that should a dispute arise regarding the contract, the
matter will have referred to a specific court
Arbitration – the parties may agree that should a dispute arise regarding the contract, the matter
will be referred to arbitration as oppose to adjudication in court
Costs - the parties may agree on who is liable for the costs of drawing up the contract or the tariff
on which costs will be payable should a dispute be referred to court for adjudication.
2.12 Rectification
As mentioned above, most contracts include non-variation terms, however, there are instances
whereby parties wish to correct and edit minor details of the contract. Rectification occurs when
parties agree to correct, add or delete certain aspects of the contract without changing the substance
or meaning of the contract. Parties may not rectify any terms that would prejudice a third party to the
contract.
2.13 Third Parties to a Contract

Generally, a person may only bind himself to a contract and not anyone else. Even when one is
acting in a representative capacity, the representative is not the one who acquires any rights or
duties. Generally, a third party may only be bound by a contract if it has been contracted for his
benefit, however, there are a few instances where a third party will acquire both rights and duties.
a) Contracts for the benefit of third parties (stipulati alteri)

This is where two parties (promisor and promissee) agree that an offer that has been made may be
accepted by a third party. The third party is not obligated to accept the offer. If the third party accepts
the offer, the promissee is no longer a part of the transaction. The contract will now be concluded
between the promisor and the third party even though the third party was not a party to the initial
offer between the promisor and promissee.
Points to note:
The third party accepts both obligations and duties

The third party need not be in existence at the time the offer is made to the promissee by the
promisor
The promissee and promisor must have intended to keep the offer open for the benefit of the third
party
The third party must accept the offer within a reasonable time
b) Assignment
This occurs when the two parties to a contract are both debtors and creditors. Assignment merely
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means that a third party will step into the shoes or replace one of parties. The third party accordingly
becomes both the debtor and creditor. All three parties must consent to the assignment.
c) Cession
A cession occurs when one party transfers his personal rights to another. In other words, one party to
the contract (the cedent) may give his rights of action to another (cessionary). This usually occurs
when a debtor owes person, a money and person A then cedes his right to claim the money from the
debtor to person B. The debtor need not consent to the cession. There are five requirements for a
valid cession:
The cedent must own the right he wishes to cede to another

The right must be able to be ceded to another
The cessionary and the cedent must have the intention to cede the right
The right ceded must be adequately described
The cession of the right must not be unlawful
d) Delegation
Delegation in contrast to assignment is whereby the debtor cedes his obligations to a third party.
Therefore, the initial agreement between the debtor and creditor falls away as the claim against the
debtor now becomes a claim against the third party. The debtor, creditor and third party must all
consent to the delegation.
2.14 Breach of Contract

Breach of contract refers to the situation where a party to a contract refuses or, for whatever reason,
fails to perform in terms of a contract. If there is a breach of a material term of the contract, the
aggrieved party may take several actions against the other party. There are several types of breach
that are recognised by the courts.
a) Repudiation
Repudiation refers to the instance whereby a party to the contract refuses (express/implied refusal)
to perform in terms of the contract. The aggrieved party then has two choices. In the first instance he
may accept the repudiation, cancel the contract and claim compensation for any loss suffered.
Alternatively, he may institute action to compel the other party to perform his contractual obligations
and in doing so, reject the repudiation.
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b) Mora Debitoris
This refers to the situation whereby a party fails to perform in accordance with time limits set by the
contract. The requirements for this form of breach is that the performance must be due and capable
of being performed. With regard to when performance is due, there is a distinction that must be
made between mora ex persona and mora ex re:
Mora ex persona is when there is time limit specified for the performance by the parties. Thus the
parties must perform within a reasonable time; and
Mora ex re is when a party fails to perform by or on the specified time period set out in the
contract
c) Mora Creditoris
There are instances where contracting parties agree that in order for a debtor to perform his
obligations, he will be assisted by the creditor. If the creditor goes back on his word and refuses to
assist the debtor, the creditor will be in breach of the contract. Mora creditoris will only occur when
the debtor has tendered proper performance at the time when performance is due and payable.
d) Positive Malperformance
Positive malperformance will occur where a party to a contract tenders incomplete or defective
performance of a material obligation. Positive malperformance will also take place where a party has
initially agreed to refrain from doing something and then consequently does the very same thing. The
aggrieved party will then be entitled to cancel the contract on the basis of breach. Once again the act
committed must relate to an essential term of the contract.
e) Prevention of Performance
This occurs when either party prevents the other party from performing his contractual obligations.
The aggrieved party will be able to claim breach of contract irrespective of whether the other party
preventing him from performing negligently or intentionally.
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Table 2.2: Summary of Remedies available to An Aggrieved Party Arising from Breach of
Contract
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2.15 Termination of Contract

When a breach of contract has been established, the aggrieved party may be entitled to cancel the
contract, however there are other ways in which a contract will come to an end.
a) Performance or Payment
When both parties have fully and validly performed in terms of the contract, the contract will come to
an end. The performance by both parties must be tendered timeously; either by or before the
specified date or within a reasonable time period.
b) Notice
Parties may include a term in the contract which allows either of them to cancel the contract. The
cancellation clause will usually state the manner in which the contract must be cancelled. There are
also instances where the law may prescribe circumstances in which a party or both parties may
terminate the contract.
c) Release
One or both parties may waive the other’s duty to perform in terms of the contract which will have the
effect of one or both parties being released from their respective duties. There are no formalities that
need to be complied with before a party may waive his rights to performance by another.
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d) Novation
Parties may choose to substitute the old contract with a new one, however, both parties must consent
to such substitution. All respective rights and duties that arise from the original contract will terminate
and be replaced with rights and duties of the new contract.
e) Set-off
This occurs when both contracting parties, for whatever reason, end up owing each other the same
and/or equal payment. Instead of paying each other, each party writes his debt off against the other.
There are four requirements that must be satisfied before set-off will occur:
The debt must be between the same parties in their same capacities
Both debts must be money or movable property of the same kind
The debt must be liquidated amounts (ascertainable in monetary value)
Both debts must be due, payable and without attached conditions
f) Prescription
Prescription relates to the expiration of a particular time period and in particular the termination of a
party’s contractual obligations due to the effluxion of time. The effect of prescription is that the debt is
no longer payable including any accessory liabilities that may have arisen through such debt e.g.
interest owed also falls away. The law contends that a creditor should have a specified amount of
time within which to institute action for recovery of debts; if a creditor fails to do so within the
prescribed time, he will permanently lose such rights. There are different time periods for different
types of debts:
A creditor has 30 years to institute action for payment of debt for: debts secured by a mortgage
bond, a judgment debt or taxes
The state has 15 years to institute action for debts owed to it as a result of loans, sale or lease of
state land
A creditor has 6 years to institute action for debts arising from bills of exchange, negotiable
instruments
A creditor has 3 years to institute action for any other debt owing
Prescriptions usually begins to run on the date that the debt becomes due and payable and only
when the creditor has knowledge of the identity of the debtor.
Refer to the Prescription Act 68 of 1969. Van Zijl v Hoogenhout [2004] 4 ALL SA 427 (SCA).
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The running of prescription will be interrupted in the following instances:
If the debtor acknowledges liability for the debt

If the creditor extends the date for payment of the debt
If the creditor serves court process on the debtor
The rules of court provide that once summons is served, the plaintiff has 12 months to take steps
to proceed with the matter, should he fail to do, the summons will lapse
If there is the occurrence of a specified event, prescription must begin to run all over again
The running of prescription will be suspended in the following instances:
Creditor is a minor
Creditor is an insane person, or person under curatorship
Creditor is prevented from interrupting prescription by vis major
Debtor is outside South Africa
Debtor and creditor are married to each other
Creditor and debtor are partners, and the debt is one arising from the partnership
Creditor is a juristic person; debtor is a member of the governing board of such person
Debt is subject of a dispute submitted to arbitration
Debt is subject of a claim filed against the estate of a deceased debtor or the insolvent estate of a
debtor
Either the creditor or debtor is deceased or an executor has not been appointed.
g) Insolvency and Rehabilitation

When a person has been declared insolvent and his estate is undergoing sequestration, certain
transactions entered before the order was made will be set aside by the court.
h) Death
Where it is possible, the executor of the deceased estate will be liable on any contracts entered into
by the deceased and is also able to claim any contractual rights or benefits that would have accrued
to the deceased. The executor will be precluded from acting on any contracts that obligated the
deceased to perform acts of a personal nature for e.g. supply of service or skill.
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2.16 Remedies for breach of Contract

If there has been a material breach of the contract, the aggrieved party may elect to cancel the
contract or abide by it. If he cancels the contract, he may claim damages but if he abides by the
contract he may claim specific performance and damages form the defaulting party. If the breach is
not a material one, the aggrieved party may not cancel the contract but may only claim damages.
a) Specific Performance
The aggrieved party may demand that the other party perform in terms of the contractual obligations.
The aggrieved would have to approach the court for an order directing the specific performance.
Specific performance will only be ordered when the court has had regard to all relevant
circumstances. It would be prudent of the aggrieved party to apply for an order specific performance
and damages as an alternative remedy. Courts will not grant specific performance in the following
cases:
Where specific performance is impossible

Where damages would be adequate compensation
Where it would result in prejudice to the defendant or a third party
Performance would involve a personal relationship between the debtor and creditor
Refer to Haynes v Kingwilliamstown Municipality 1951 (2) SA 371 (AD). Barkhuzien v Napier 2007
(5) SA 323 (CC).
b) Cancellation
An aggrieved party may only cancel a contract if the breach relates to a material term, in other
words, he would have not entered into the contract if it were not for the terms being included into the
contract.
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Activity 2.1
1. Andrew agrees to deliver a lounge suite to Lunga on Friday 7th May. He

however only delivers the lounge suite on Saturday the 8th. Explain if Lunga
is entitled to cancel the contract.
2. Marital Bliss agrees to deliver a marquee to Julia by 18h00 on the

afternoon of Friday 7th May. They however deliver the marquee on Saturday
8th at 08h00 – only 14 hours late. Julia’s wedding ceremony begins at 09h00.
Explain if Julia is entitled to cancel the contract.
3. Make sense of each scenario paying particular attention to whether the

time terms were material or not.
c) Damages
The purpose behind a court awarding damages, is to place the aggrieved party in the same position
he would have been in had the other party fulfilled his obligations. The aggrieved party must be able
to prove the following in order to claim damages:
The amount of loss – interest may be included in this amount

The breach must be the direct cause of the loss suffered – each case will be judges on its own
facts
The loss as a result of non-performance must not be remote or unforeseeable
The loss must be able to measurable in monetary terms
The aggrieved party must have attempted to mitigate the loss - that is to take all reasonable steps
to reduce the loss suffered
The aggrieved party must prove the damages
The aggrieved party must have attempted to mitigate the loss
In terms of contractual law, the only damages that may be claimed will be for financial loss suffered
d) Interdict
An interdict is a court order directing a person to do so something or to refrain from doing something.
It may be used to prevent someone from doing something that breaches the terms of the contract. It
may also be used to prevent a third party from doing anything that would affect the contractual rights
of the interested parties to the contract. In applying for an interdict, the aggrieved party must prove:
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That he has a clear right

That this right is being injured or will reasonably be injured
No other remedy will assist him adequately
e) Declaratory Order
A party may apply to court for an order to clarify and confirm their rights in terms of a specific
contract. The court’s decision will be binding interested parties.
f) Interest
Any claim for interest that an aggrieved party/creditor has lost on money he should have received by
a certain date would normally be claimed at the same time that damages have been claimed. With
regard to liquidated amounts, interest will be payable from the date upon which the amount came
due. When dealing with unliquidated amounts, interest may only be claimed from the date on which
the debtor was placed in mora (notified of amount owed). Parties to a contract may stipulate the
amount of interest to be charged at the time of contracting, if they fail to do so, the rate of interest will
be determined by the law. For instance, if a contract has been concluded in terms of the National
Credit Act 34 of 2005, the rate of interest will be determined by the Act itself. Refer to The Prescribed
Rate of Interest Act 55 of 1975.
Revision Questions
1. Illustrate five requirements of a valid contract.

2. Explain the difference between void and voidable contracts.
3. Distinguish between a mistake and a misrepresentation.
4. Illustrate three types of breach of contract and give a practical example of
each type.
5. Explain what is meant by specific performance.
6. Discuss conditional contracts.
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Unit
3:
The Law of Sale
Unit 3: The Law of Sale
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Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.


Press.
Scott, J. et al. (2020) The Law of Commerce in South Africa. Third

guide.
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3.1 Definition of the Contract of Sale

A contract for the sale of property requires a mutual agreement whereby one person (‘the buyer’)
agrees to deliver a specified object (the merx) to another party (‘the seller’). The buyer in return
agrees to pay the seller the agreed purchase price (pretium).
3.2 Requirements for Sale Contracts

As with all contracts, the general requirements for a valid contract must be satisfied. Generally, there
are no formalities that need to be adhered to in the contract of sale, however, there are various
pieces of legislation that may prescribe formalities for the sale of certain types of property. There are
two legislations that have been developed in recent years which have significantly impacted on the
law of sale in South Africa and are worth discussing at the outset of this chapter.
Activity 3.1
1. Illustrate and discuss the general requirements for valid contract.
3.2.1 The Consumer Protection Act 68 of 2008

The Consumer Protection Act 68 of 2008 (CPA) aims to regulate ‘transactions for the supply of
goods and services’. The CPA will apply to all sale agreements (unless specifically exempted), the
promotion of goods and to sellers of goods.
The CPA will not apply to:
Goods promoted or sold to the State

Contracts of sales where the buyer is a juristic person. Therefore, the CPA will not apply to
commercial contracts where the freedom to contract operates unrestricted. The CPA will only
apply to commercial activity where the consumer is a small juristic person with an asset value or
annual turnover of less than 1 million rand
The contract amounts to a credit agreement under the National Credit Act 34 of 2005
3.2.2 The National Credit Act 34 of 2005

The National Credit Act 34 of 2005 (NCA) will apply to all sale contracts which constitute credit
agreements. The buyer will be referred to as the ‘consumer’ and the seller referred to as the ‘credit
provider’. As with the CPA, the NCA will apply to all credit agreements unless otherwise exempted.
The NCA requires certain agreements to be reduced to writing, however, non-compliance with this
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requirement does not render the contract void.
3.2.3 Alienation of Land Act 68 of 1981

Unit 2(1) of this Act states that any alienation of land will not be valid and enforceable unless it is
contained in a deed of alienation and signed by the parties or their agents.
3.3 The Transfer of Ownership

Generally, parties enter into a contract of sale with the intention of transferring ownership in the merx
to the buyer, however, the law of sale does not regulate the transfer of ownership. The law of
property, however, states that the following requirements must be satisfied before ownership may be
transferred.
3.3.1 The seller must be the owner of the property

The seller must be the owner of the property or must have been given a mandate by the owner to
sell the property. If the seller delivers the merx to the buyer but is not yet the owner of the merx, the
buyer will not necessarily acquire rights of ownership over the property but only the rights the buyer
influenced over such property, e.g. possession. There is therefore an obligation on the seller to
obtain ownership of the item and then transfer it to the buyer. If the seller sells an item without the
knowledge or consent of the owner, the owner of the property may recover possession of the
property at any time from the buyer by means of the rei vindicatio action (this action is available to
the owner even if the buyer has already paid the purchase price).
3.3.2 Intention to transfer ownership

At the moment of transfer (generally delivery of the merx) the seller must have the intention to
transfer the ownership of the property. At the same time, the buyer must have the intention to acquire
ownership of the property. With regard to movable property, even though delivery may take place,
ownership will not pass to the buyer until the full purchase price has been paid.
If a seller fails to claim payment of the purchase price within a reasonable time, it may be inferred
that it was a credit sale. If it can be inferred from the contract that the buyer was not required to pay
the purchase price on the delivery of the merx, it will once again be deemed to be a credit sale.
When it is unclear whether the contract of sale is one of credit or sale, the terms of the contract, the
surrounding circumstances and the actions of the parties at the time of contracting will be considered
by a court.
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3.3.3 Delivery of the Property

a.) Immovables
The ownership of immovables will only pass to the buyer on registration of the transfer of the
property from the seller’s name to the buyer’s name in the Deeds Registry Office.
b.) Movables
There are two main ways of delivering movables:
Actual Delivery: Is physically handing the thing over to the buyer or putting him into “effective
control” of the thing, e.g. the seller hands the cell phone over to the buyer, or gives him the keys
to the new warehouse.
Constructive Delivery: This means the doing of something which the law accepts as being the
same as actual delivery.
There are five kinds of constructive delivery:

a. Symbolic Delivery
This form of delivery involves the physical handing over of a symbol of the property and not the
property itself. E.g. the keys to a motor vehicle may be handed to the buyer.
b. Delivery with the Long Hand

This form of delivery involves the seller pointing out the merx without giving the buyer physical
possession and placing the merx at the disposal of the buyer. This type of delivery will allow the
buyer to take physical control of the merx. E.g. the seller will point out a ship to the buyer.
c. Delivery with the Short Hand

This form of delivery is used specifically when the buyer is already in possession of the property but
is not yet the owner of such property. E.g. the lessee seeks to purchase the flat that he or she rented
from the lessor.
d. Transfer of Possession
This type of delivery is used when the parties have agreed that even though the buyer is the new
owner of the merx, the seller will remain in possession of the merx for the benefit of the buyer.
e. Attornment
With regard to this type of delivery, there is an agreement between the seller, the buyer and a third
party that the merx is under the factual control of the third party who holds it on behalf of the seller;
and who agrees that upon conclusion of the sale agreement, will continue to retain possession of it
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on behalf of the buyer.
f. Incorporeal Movable Property

Incorporeal (cannot be seen or touched) movable (not immovable property) property will be
delivered by the cession of the rights in the property from the cedent to the cessionary. e.g. A cedes
his shares in a Company to B.
Think Point 3.1

Explain the difference between (a) the agreement by the seller and the
purchaser to sell a thing for a price and (b) the passing of ownership from
the seller to the buyer which will only happen when the seller delivers the
thing to the purchaser.
3.4 Essential Elements for the Contract of Sale

3.4.1 There must be An Agreement on the Merx
The parties must reach agreement on the property to be sold. The property may take any form, for
e.g. movable property, immovable property or incorporeal property. There are, however, various
legislation which will dictate whether or not certain types of property may be sold and if such property
is sold, stipulate the conditions thereof. It is not a legal requirement of the contract of sale that the
seller be the owner of the property; the seller merely agrees to deliver undisturbed possession of the
property to the buyer.
With regard to whether the property is in existence at the time the contract of sale is entered into will
require two different situations to be looked at. Firstly, there is the situation where the parties are
under the misapprehension that the property is in existence when in fact it is not. In this instance, the
contract entered into will be void abnitio. In the second situation, whilst the property is not in
existence at the time of contracting, both parties expect it to come in existence in the future. The
parties may include suspensive conditions into the contract stating that the purchase price will only
be payable once the property has materialised. However, for this type of contract to be entered into,
the property must be certain or ascertainable at the time of contracting. If the property is not
identifiable or cannot be identified, the contract may be found to be void on the grounds of
vagueness.
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3.4.2 There must be Agreement on the Price

The parties must reach consensus on the purchase price either expressly or tacitly. The parties must
agree on a price that is in money and in a legally recognised currency. The purchase price must be
already ascertained or ascertainable in money. The parties may specify the exact amount of the
purchase price in the contract or may agree on a manner in which such amount will be determined in
the future. The purchase price does not need to reflect the actual value of the property, but the price
should not be so minor as to mask a donation for a sale. The parties must also have the intention
that the purchase price is actually paid when it becomes due and payable; if this intention is absent,
despite the terms of the contract, the contract will not be one of sale.
Activity 3.2
Bradley is getting married soon and wants to sell some of his things. He
decides that he no longer requires his pool table and believes that R5000.00
will be a reasonable sale price. Before Bradley puts out a public
advertisement, he asks his friends if they are interested in buying the pool
table at the said price. His best friend, Adele, makes an offer of R3500.00
even though Bradley knows that Adele does not really have that amount of
money.
1. Explain if a valid offer has been made by Adele and provide a reason for
your answer.
3.5 Duties of the Parties

Parties will be legally bound by terms and conditions agreed to in the contract. With regard to
statutory requirements, parties will be bound by them even if they have not specifically agreed to
them. These obligations will be enforceable through the operation of law. According to the common
law of sale, there a few obligations that must be fulfilled by the parties.
3.5.1 The Sellers’ Obligations

a) The duty to take care of the goods
The seller is responsible for all loss or damage caused (negligently) to the merx; until delivery has
taken place. Accordingly, the seller will not be liable for an accidental loss or damage to the merx
once the contract of sale is concluded. The parties may contract to vary the general principles of
common law that apply to the passing of risk. In terms of the common law, the risk of accidental loss
or damage to the merx will rest with the buyer when the contract is complete (perfecta). The contract
will be complete when:
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All conditions attached to the contract has been fulfilled

The price can be determined
Their property sold must be determined
It is important to note that risk may pass to the buyer even if delivery has not taken place and/or
ownership passed to the buyer.
b) The seller’s duty to take care of the goods

If the sale is complete but delivery has not yet occurred, the seller has a duty to take reasonable care
of the merx. If it is found that the seller’s duty of care did not meet the standard of a reasonable
person, he will be liable for the loss or damage to the property on the basis of negligence.
However, if the merx sustains loss or damage through no reasonable fault of the seller, the buyer will
only have two remedies available to him. The buyer may cancel the contract on the basis of
impossibility of performance; or receive the damaged goods and request a reduction in the purchase
price.
3.5.2 The Buyer’s Obligations

a) The buyer must pay the purchase price
The buyer must pay the purchase price when it becomes due and payable. If the contract is silent on
when the price should be paid, it will be deemed to be payable upon delivery of the merx. However,
as discussed above, the parties may vary the common law position by agreement. Generally, the
seller is entitled to insist that payment of the purchase price is in cash and payment must take place
where delivery takes place. With regard to credit sales, the time and place for payment will be set out
in the contract and only take place after delivery of the merx. If the payments are going to be done in
instalments, the time and place must be specifically stipulated in the contract and include provisions
relating to interest charged if applicable.
With regard to the sale of immovable property, payment will generally take place at the time the
property is transferred to the buyer. In most transactions for the sale of immovable property, the seller
will only transfer the property upon receipt of bank guarantees or security from the buyer within time
limits agreed to by both parties.
b) The buyer’s duty to receive the goods

The buyer must receive the goods at the time and place agreed upon. If the parties have not agreed
on a specific time and place, the goods must be collected by the buyer within a reasonable period of
time. The goods may be collected at the buyer’s place of business or the place at which the merx
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was situated at the time of contracting.
If the buyer refuses or fails to receive the goods, he will liable for a breach of contract. The seller
may then claim damages for the costs incurred as result of the breach, such as storage costs.
If at the time of delivery, the buyer feels that the goods do not meet the standard or description
agreed to, he is entitled to refuse to accept such goods and claim damages from the seller based
for breach of contract or positive malperformance.
If the buyer finds that after delivery has occurred, the merx is defective, he must give notice of
such defect to the seller within a reasonable time period.
3.6 Warranties
3.6.1 Warranty against Eviction
A warranty against eviction is a promise by the seller that the buyer will not be dispossessed of the
merx. If the seller is aware that he is not the owner of the property and fails to tell the buyer; and the
buyer is subsequently dispossessed of the merx, the buyer is entitled to cancel the contract on the
basis of fraud.
If on the other hand, the seller is not aware that he is not the owner of the property and contracts a
bona fide sale with the buyer, the contract remains valid and enforceable. The buyer will then have a
remedy against anyone who threatens to dispossess him of the property (provided that such
dispossession is not by the owner who has a real right in the property).
The warranty will provide the buyer with the following remedies upon dispossession:
He may cancel the contract

He may claim the value of the merx at the time of dispossession
He may claim the purchase price
He may claim damages for any cost incurred
He may also claim interest from the date of demand
3.6.2 Warranty against Defects

In terms of the common law, the seller is liable for any latent defects (a defect that a reasonable
person would not have discovered upon inspection of the merx) discovered by the buyer whether or
not he was aware of such defects. The seller may be held liable for the latent defects if the following
requirements are satisfied.
Defect in the merx – this refers to an attribute or quality of the merx which impairs the utility of it
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and undermines the purpose for which it was sold

The defect must not be minor – the defect will only be considered if it renders the merx less useful
for its usual purpose
The defect must be latent – this looks at whether a reasonable person in the position of the buyer
would have discovered the defect. This is an objective test
The defect must have been existence at the time the parties entered into the contract – the
surrounding circumstances will be looked at. This is a subjective test
The seller may exclude any liability for latent defects if both parties agree that the merx is sold
‘voetstoots’ (as is). The buyer thus agrees to buy the merx and bear the risk of any latent defects.
The responsibility then rests with the buyer to inspect the merx. The seller will not be able to rely on a
voetsoots clause and is liable for fraudulent misconduct where he was aware of the latent defect and
deliberately remains silent about it.
3.7 Remedies
3.7.1 The Actio Rehibitoria
The actio rehibitoria will be used by the buyer to rescind the contract, if the buyer can prove that he
would not have bought the goods had he been aware of the latent defect. Here the court will look at
the degree of impairment that the defect causes to the utility of the merx. If the buyer is able to prove
the above, he will be entitled to cancel the contract and claim restitution.
Restitution will place the buyer in the same position he was in before he performed in terms of the
contract of sale i.e. the repayment of the purchase price with interest. Therefore, if the buyer has
already paid the purchase price, he will be able to claim back the purchase price as well as interest.
Restitution will further allow the buyer to claim for reasonable losses incurred as a result of the
transaction. Restitution also obliges the buyer to return the defective merx to the seller unless this is
impossible through no fault of his own. (The buyer will not be able to use this remedy and
simultaneously claim damages.)
3.7.2 The Actio Quanti Minoris

The actio quanti minoris is available to the buyer where there is a latent defect but the buyer chooses
to abide by the contract. The buyer may claim a reduction in the purchase price and retain
possession of the merx; the reduction in the purchase price will take into account the difference
between the value of the defective merx and the value of a similar merx without any defect. Another
method used to determine the amount of the reduction in the purchase price would be the costs of
the repairs in removing the defect.
The buyer must choose either a remedy based on the actio rehibitoris or the actio quanti minoris.
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The buyer can lose his right to these actions for latent defects if he does not act quickly once he finds
out about the latent defect. He cannot wait six months and then take a faulty radio back to the shop
and claim restitution or a reduction in price. Also if the buyer knows about the defect at the time that
he buys the goods, but still buys them despite the defect, he cannot later claim against the seller.
Even if the buyer did not know about the defect at the time he buys the goods, but finds out about the
defect soon after buying the goods and instead of taking them back to the seller, he tries to repair the
goods himself or have someone else repair the goods, he will not be able to use these actions
against the seller. The reason is that the law presumes that he is prepared to accept the goods with
the latent defect.
A seller can protect himself against a buyer's claim for latent defects by putting a voetstoots clause
into the contract of sale. This will mean that the buyer takes the goods as they are. If the goods later
turn out to have a latent defect, the buyer cannot take them back and claim restitution or a
reduction. Consumers must be very careful about buying goods which are sold voetstoots. The only
way a buyer can claim against the seller where there is a voetstoots clause is where the seller knew
about the defect in the goods and was fraudulent in selling it knowing that it had a serious problem or
defect. But this is difficult for the buyer to prove.
Think Point 3.2

Example.
You may recall having bought a product that proved to be faulty. Explain
what it was, what you did about it and what was the result of your action.
Reading
Read through the Consumer Protection Act 68 of 2008 for more information
on the comprehensive liability of manufacturers and dealers who are
considered to be specialised sellers bearing specialised liabilities.
D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd and Another
2006 (3) SA 593 (SCA)
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Revision Questions
1. Explain what is meant by “a particular price”.

2. Illustrate the two implied warranties in a contract of sale.
3. Explain what a latent defect is.
4. Explain what is meant by the passing of the risk.
5. Explain the general rule for the passing of ownership.
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Unit
4:
The Law of Lease
Unit 4: The Law of Lease
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Du Plessis, J.V. and Fouche´, M.A. (2019). A practical guide to Labour


Press.

guide.
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4.1 Introduction
The law of lease deals with the letting and hiring of immovable property and involves a contract
between the landlord (lessor) and the tenant (lessee). A lease agreement is made up of mutual
agreements between the parties whereby the lessor will provide temporary use and enjoyment of the
property in return for payment of money from the lessee.
4.2 The Essential Elements of a Lease Agreement
The use and enjoyment of the property by the lessee will only be temporary
The lessor will bind himself to provide use and enjoyment of the property to the lessee
The lessee binds himself to pay a specified amount of money in return for use and enjoyment of
the property
4.2.1 Use and enjoyment of the property

There is no requirement that the lessor must provide the lessee with full use and enjoyment of the
property; partial use and enjoyment of the property may be granted. The property to be let must be
identified or be able to be identified. The lessee only acquires temporary use and enjoyment of the
property with the intention of returning the property, in the same condition, it was leased to him.
4.2.2 The duration of the contract of lease

The lessee will only be given temporary use and enjoyment of the property; this does not prevent the
parties from renewing the contract. It is a not requirement of the lease that the duration of the lease
be for a definite time. The contract may include conditions which state that the lease will run until a
specified event occurs or will terminate upon the occurrence of the specified event. Therefore, the
lease may be concluded for an indefinite time and be terminated upon notice by either party.
4.2.3 The rent

The lessee must agree to pay rent; the rent to be paid must be certain or ascertainable. Therefore,
the parties may agree on a method of calculating the amount of rent to be paid rather than a specific
amount. The parties may agree to an independent third party deciding on the amount of rent to be
paid. Either party may set the amount to be paid, insofar as the other contracting party agrees,
however, the Rental Housing Act 50 of 1999 has the power to set aside rentals that are considered to
be excessive or exploitative.
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Activity 4.1
1. Sandiya does not know when she will get another job and may consider
selling her property. Advise her on the rules relating to the sale of property
where the whole/part of the property has been leased.
4.3 Formalities
There are generally no formalities attached to the leasing of property. With regard to long leases of
immovable property, the formalities in respect of the Lease of Land Act 18 of 1969, states that such
leases must be registered against the title deeds of the property.
4.4 Duties of the Lessor

4.4.1 The duty to deliver the property to the Lessee
The lessor’s primary duty is to provide use and enjoyment of the property to the lessee. The lessor
must deliver the property to the lessee; ensure that the lessee has the property at his disposal and
may begin undisturbed occupation of the property. With regard to long leases, the lessor must assist
the lessee in registering the lease against the title deeds of the property.
The property delivered by the lessor must allow the lessee to use and enjoyment of the property. The
parties may specify the condition in which the property must be delivered, however, it is generally
accepted that the property must be delivered in a condition that is reasonable for the proper use and
enjoyment of the property.
4.4.2 The duty to maintain the property in proper condition

The lessor must not only deliver the property in a condition that is reasonable for the use and
enjoyment of it but also maintain the property in such a condition for the duration of the lease. The
parties may also vary the lessor’s duty to maintain the property and apportion some or all of it to the
lessee. The lessor will not be obliged to maintain the property where the lessee has caused
damages to the property.
The lessee’s remedies if the lessor fails to deliver or maintain the property
a.) Where the lessor has failed or refuses to maintain the property in a reasonable condition, the
courts are slow to enforce specific performance as it if difficult to enforce. The lessee may repair the
property himself and thereafter claim the costs of repair from the lessor. Alternatively, the lessee may
set off the costs of the repair against the rent due to the lessor. The lessee will only be able to
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recover the costs of repair if the lessee:
Had given the lessor notice of his intention to repair the property and
Allowed the lessor reasonable time to repair the property
See: Mpange v Sithole 2007 (6) SA 578

b.) Should the lessor fail to perform any of his duties; and the lessee cannot objectively be expected
to be satisfied with the defective performance, the lessee will be entitled to cancel the contract.
c.) If at the time of delivery, the lessor delivers property that is defective, the lessee may choose not
to accept such delivery and may cancel the contract. If whilst the lease is already in existence, the
property becomes defective to the point that the lessee cannot objectively be expected to continue
with the lease (property must be rendered practically useless for their purpose); the lessee must first
provide the lessor with an opportunity to remedy the situation and thereafter cancel the contract if the
lessor fails to perform.
d.) If the lessor fails to deliver or to maintain the property in a reasonable condition, the lessee will
only be able to claim consequential damages if:
He can prove that the lessor knew or ought to have known of the defective property
The lessor failed to remedy the situation
See Fourie NO v Hansen 2001 (2) SA 823 (W)
e.) The lessee, may choose to abide by the lease even though the property is defective if he
believes that the defect is not serious enough to warrant cancellation. In this instance, the lessee will
be able to claim a reduction in rent to the extent that the use and enjoyment of property was impaired
by the defect.
4.4.3 The Duty to ensure the Lessee’s undisturbed use and enjoyment of the property
The lessor must ensure that the lessee has the property at his disposal and is free to use and enjoy it
without being disturbed by the lessor or anyone else. In other words, the lessor must not
unreasonably disturb the lessee from using and enjoying the property and further prevent third
parties with superior title from disturbing (evicting) the lessee.
a.) The Lessor disturbing the Lessee

The lessor must not unlawfully disturb the lessee’s use and enjoyment of the property, however, a
lessor is entitled to enter the leased property for the purpose of effecting repairs. If the lessor cannot
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complete the repairs whilst the lessee is in occupation of the property, he may compel the lessee to
vacate the property. Apart from effecting repairs, the lessor also has the right to inspect the leased
property. According to Unit 4 (2) of the Rental Housing Act 50 of 1999, a lessor may only exercise his
right of inspection in a reasonable manner and after reasonable notice to the lessee.
Should the lessor unlawfully disturb the lessee’s use and enjoyment of the property, the lessor will be
guilty of committing a breach of contract and the lessee will have the usual remedies for breach of
contract available to him. However, an interdict is the normal means of restraining the unlawful
conduct of lessors in these instances. If the lessor has unlawfully prevented the lessee from entering
and occupying the property, the lessee may recover his rights by means of the mandament van
spolie action that is, a person who has been dispossessed of property without due legal procedure
may apply to court to have the property returned to him. The lessee will only be entitled to a
reduction in the rent payable for the period he was deprived of the use and enjoyment of the
property.
Think Point 4.2

What should happen in a case where a landlord suspects that a tenant is
using the premises for an unauthorized and possibly illegal business?
Should the landlord be allowed to ‘snoop around’ while the tenant is out
so as to make sure there is nothing illegal happening on his premises?
b.) Third Party with Superior title disturbing the Lessee

As mentioned above, the lessor has a duty to prevent a third party, who claims to have a superior
title, from disturbing the lessee’s use and enjoyment of the property. If the lessor is unable to prevent
a third party from disturbing the lessee’s use and enjoyment of the property, the lessor must
compensate the lessee for such disturbance. If the lessee is in fact evicted and/or disturbed, the
lessor will be liable for a breach of contract and the normal remedies for breach of contract will be
available to the lessee.
The lessee is required to notify the lessor of any threaten eviction to allow the lessor to remedy the
situation. The lessee will be entitled to a reduction in rent in accordance with the deprivation of his
use and enjoyment of the property.
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4.5 Duties of the Lessee

4.5.1 The Lessee’s duty to pay the rent
The lessee’s primary obligation is to pay the rent and to pay such rent in the legal tender of the
country. The parties may vary the common law position that the rent should be paid in arrears. For
instance, the parties may agree that the rent be paid in advance or on a specific date every month. A
lessee normally has the last moment on the last day to make payment.
Parties may agree that payment be made at a particular office and it will be accepted that parties
intended that payment be made during the business hours of that office. If the parties have agreed
on a time but no place for payment, the duty is on the lessee to find the lessor to effect payment and
avoid defaulting on payment. If the lessor has not specified a date for payment, he will first have to
stipulate the date by means of a letter of demand before the lessor can fall into default.
a.) The Lessor’s remedies on the lessee’s breach

There are two ways in which a lessor may breach the contract with regard to payment of rent. The
first way is by defaulting on the payment of the rent and the second is by denying liability for the rent
at all. In both instances the lessor has the usual remedies for breach of contract available to him. If
the lessor elects to cancel the contract, he may claim damages for any loss suffered as well as
accrued arrear rent.
b.) The Lessor’s tacit hypothec for unpaid rent

The lessor’s tacit hypothec secures his claim against the lessee for any unpaid or arrear rental. The
hypothec attaches to all movable property brought onto the leased property by the lessee, as well as
any fruits or crops that accrue to such movable property. The lessor will be entitled to utilise the
hypothec when the lessee defaults on payment of the rent, however, there are certain requirements
that must be taken by the lessor to perfect the hypothec. There are various types of property that will
be subject to the lessor’s hypothec such as:
i.) The Lessee’s property

All movables that belong to the lessee falls within the bounds of the hypothec. The movable property
may include money or property that the lessee is unaware of but is situated on the property.
ii.) The Sub-Lessee’s property

The sub-lessee’s property will only be subject to the hypothec to the extent that the sub-lessee has
rent due and payable to the lessee.
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iii.) Property of a Third Party

According to Bloemfontein Municipality v Jacksons Ltd 1929 AD 266, the property of a third party will
be subject to the Lessor’s hypothec if:
The goods were brought onto the leased property

With the consent of the third party
With the intention that they remain on the property indefinitely
For the use of the lessee
The third party has the opportunity to declare his ownership to the lessor and fails to do so and
The lessor is unaware that the goods belong to a third party
The third party’s property will only form part of the hypothec to the extent that the lessee’s property
does not satisfy the arrear rent due to the lessor.
iv.) Perfection of the Lessor’s hypothec

The hypothec is only enforceable when the lessee’s payment of rent is in arrears. The lessor must
obtain a court order by providing proof to the court that the lessee’s payment of rent is in arrears. The
court order will have the effect of attaching the goods and interdicting the lessee from removing such
goods from the leased property. According to the common law, the court order is brought against the
lessee on notice and has the effect of making the lessor a ‘privileged creditor’. The hypothec will
terminate once payment of the arrear rental occurs; upon such termination, the lessor must return all
attached movable property to the rightful owner.
According to The Magistrates’ Courts Act 1944, the lessor may apply for an automatic rent interdict
which may be issued when the summons for claiming arrear rent is issued. The interdict has the
effect of preventing any person from removing any goods subject to the lessor’s hypothec before a
court decision has been made on the matter.
4.5.2 The Lessee’s duty of proper use and care of the property
Generally, the lease contract will stipulate the purpose for which the property has been leased but
parties may also agree upon the purpose tacitly:
The lessee may use and enjoy the property for the purpose for which the lessor anticipated it to
be used and be enjoyed
For the purpose for which it had been previously used
Or for the purpose that flows from the nature of the property
Furthermore, in using the property for its said purpose, the lessee is required to use and care for the
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property in the same manner he would have done if he was the owner of the property.
a.) The Lessor remedies in the event the lLssee misuses the property
The normal contractual remedies will accrue to the lessor upon the lessee’s breach of the contract.
The lessor may obtain an interdict preventing the lessee from using the property unreasonably,
improperly and for anything other than its contemplated and intended purpose. The lessor may be
entitled to cancel the contract provided the contract has a forfeiture clause or the breach is serious.
The lessor will be entitled to claim damages if the lessee’s improper use of the property results in
loss to the lessor. However, if the breach committed does not allow for a cancellation, the lessor will
not be able to claim for damages prior to the expiry of the lease as the lessee is still able to restore
the property to good order.
4.5.3 The Lessees’ duty to restore the property in termination of the lease
The lessee only has a right to temporary use and enjoyment of the leased property; upon termination
of the lease, the lessee is obliged to return or restore the property to the lessor. The lessee’s failure
or refusal to return the property will constitute ‘unlawful holding over’ of the property which amounts
to a breach of the contract. Whilst the lessor’s right against the lessee will include the right to
terminate the contract, The Rental Housing Act 50 of 1999 indicates that a lessor bears the onus of
proving that the termination of a lease does not amount to an unfair practice and is permitted in
terms of the lease itself.
a.) The Lessor’s remedies on the Lessee’s breach

Should the lessee fail or refuse to the return the property or return the property in the condition it was
given to him, the lessor will have his usual contractual remedies for breach of contract available to
him such as specific performance and damages for any loss incurred. Legal process must be
adhered to when a lessor contemplates the eviction of a lessee. With regard to the eviction of
commercial lessees, the lessor must prove that he is the owner and that the lessee is in occupation
of the leased property.
With regard to lessee’s who have leased the property for residential purposes, the provisions of The
Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 will apply. The
courts have stated that the aim of the Act is to regulate eviction in a fair manner. The Court, in
considering the circumstances of the case (rights and needs of the elderly, children, disabled person
etc.), will only order eviction where it is just and equitable to do so. See Ndlovu v Ngcobo; Bekker
and another Jika [20020] All SA 384 (SCA). Section 26 of the Constitution (Act 108 of 1996).
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4.6 Termination of the Lease

A contract of lease may be terminated through the usual means of terminating a contract, such as:
The parties have fully and properly performance all of their contractual obligations
Mutual agreement by the parties
The matter has prescribed
There has been supervening impossibility of performance
There are also specific ways in which a lease contract may be terminated
a.) Effluxion of Time

If the parties have agreed that the lease contract will be for a specified period of time, the contract
will terminate automatically upon expiry of such time.
b.) Termination by Notice

If the parties have not specified a specific date upon which the contract will terminate, either party
may terminate the contract upon reasonable notice to the other. The period of notice must allow the
lessor sufficient time to lease the property to another or allow the lessee sufficient time to find
alternative accommodation. The notice of termination will only be deemed valid and enforceable
when the other party receives actual knowledge of it.
c.) Termination by extinction of the lessor’s title

Should, for any reason, the lessor’s title over the property terminate, the lease will not automatically
terminate. If, however, the lessee’s right to use and enjoy the property has diminished due to the
lessor’s absence of title, the lessee may claim damages from the lessor. The lessee will also be
protected by the doctrine of the ‘huur gaat voor koop’ (lease before sale). In terms of this doctrine
even though the lessor sells the leased property and his title over the property has extinguished; the
lessee’s right to use and enjoy the property remains intact until lawfully terminated for any other
reason other than the sale itself.
d.) Termination by Death

The lease will only terminate upon death of either party if the contract makes allowance for such
termination. Generally, the death of either party will not terminate the contract. The continuation of
the lease contract will be at the discretion of the executors of the late estates.
e.) Termination by Insolvency

A person whose liabilities exceed his assets may be declared by the court to be insolvent. Once he is
so declared, he may not contract until he is granted permission to do so again by the court. If the
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court agrees, he is said to be rehabilitated. Once the estate of the insolvent has been finalized and
distributed, he is no longer responsible to any of the creditors who lost money through his insolvency,
even when he is later rehabilitated. Once the debtor is declared insolvent, he is sequestrated and a
trustee is appointed by the court to take away all the debtor's remaining assets. The trustee then
sells the assets, which is called realisation. The trustee then distributes the proceeds to creditors with
secured claims. This payment causes the discharged.
Revision Questions
1. Discuss the duties of the lessor and the lessee in a contract of lease.
2. What ordinary and extraordinary remedies can a tenant use if the landlord
does not carry out his duties in terms of the lease?
3. What is the landlord’s tacit hypothec and in what circumstances can he use
it?
4. Explain the doctrine of “huur gaat voor koop”.
5. If a tenant makes improvements to the rented property what can he do
when the lease period is ends?
6. How can a lease be terminated?
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Unit
5:
The Law of Insurance
Unit 5: The Law of Insurance
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Press.

guide.
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5.1 Introduction
There are various reasons for a business experiencing a financial loss. All businesses risk damage
to their property or liability for the actions of their employees. To safeguard against potential legal
liability and to allow the business to continue to exist, should any of the contemplated risks
materialise, businesses mandate another entity to bear such risk on its behalf. Therefore, insurance
deals with the transfer of risk whereby one party (the insurer) will indemnify another party (the
insured) should a specified risk occur. In return, the insured agrees to pay a certain some of money
(the premium) to the insurer.
5.2 Different Types of Insurance
5.2.1 Indemnity Insurance

Indemnity insurance is an undertaking by the insurer to compensate the insured for a specified
financial loss (to be calculated at the time of loss) that may or may not occur. Should the specified
event materialise, the insured will be reimbursed the actual patrimonial loss incurred? Examples of
indemnity insurance include property insurance and liability insurance.
5.2.2 Non-indemnity insurance

Non-indemnity insurance is an undertaking by the insurer to compensate the insured for a specific
amount (amount calculated in advance) on the occurrence of a specified event. The value attached
to this type of loss incurred by the insured will not necessarily correspond with the actual patrimonial
loss suffered by the insured. The amount of compensation to be paid by the insurer will be agreed to
between the parties. An example is life insurance.
Activity 5.1
1. List all the possible events that may take place at some point in your life
that you may need to insure against. Is it possible to think of everything? Is it
possible to know how many of these things will actually happen?
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5.3 Essentials of an Insurance Contract

5.3.1 The Insurer undertakes to pay or perform something
The insurer agrees to pay the insured an amount of money on the occurrence of an event
contemplated by the parties. The insured has the discretion to decide the manner in which he utilises
the money paid to him to compensate for his loss. For instance, the insured may or may not choose
to utilise a pay-out by the insured to repair an insured vehicle damaged in an accident. It is also
common for an insurer to include a ‘reinstatement clause’ in the contract which reserves the
insured’s rights to either pay the insured a particular amount of money or to take it upon himself to
have the damaged property repaired or replaced.
5.3.2 The Insured undertakes to pay a premium

The insured undertakes to pay a premium to the insured. It is not a prerequisite that the insured
actually pays a premium in order for the contract to become valid and enforceable. The contract will
come into being if the insured undertakes to pay a premium in the future. Insurance policies may
stipulate a date upon which the premium must be paid and it is generally accepted that such
premium must be paid in money.
5.3.3 On the happening of an uncertain event

There are two ways in which an event may be regarded as uncertain. Firstly, the parties may be
uncertain as to whether the event will or will not materialise. Secondly the parties may be uncertain
as to when the event will occur.
Think Point 5.1

Relatively few young people buy life insurance. Why?
Do you think they should?
What might change their attitude toward buying insurance?
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5.3.4 To compensate the Insured for the materialisation of the uncertain event
The performance tendered by the insured must meet legal requirements according to the type of
insurance policy entered into by the parties. With regard to indemnity insurance, the insured must be
indemnified for patrimonial losses caused by the uncertain event. In terms of non-indemnity
insurance, the insurer must agree to pay the insured a specified some of money upon the
occurrence of the uncertain event.
5.4 The Insured’s Duty of Disclosure

The insurer’s decision to contract is dependent upon the information given to it by the insured to
firstly calculate the risk to be taken; and secondly to determine the premium payable by the insured.
To ensure that such calculation is correct and reasonable; the law requires the insured to make all
material disclosures to the insurer. When considering what would constitute a ‘material disclosure’,
the courts consider whether a reasonable person would have thought the disclosure would allow the
insured to calculate the potential risk of the situation. The court will also consider whether or not the
insurer would not have entered into the contract or entered into the contract on different terms had
the insured disclosed all material facts.
The duty to disclose not only applies to the insured providing accurate information to all questions
put to him but also extends to disclosing, on his own accord, facts to the insured that are material to
the policy. The insured is obligated to disclose all information that is within his knowledge or which he
should have known had it taken reasonable steps to obtain such knowledge.
Think Point 5.2

Is there anything that you believe you should have or would have to
disclose when applying for an insurance contract? Is there anything you
would be tempted not to disclose? Why?
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5.5 Manner in Which Claims Must be Brought

The insurance contract will generally state the manner in which a claim must be lodged. The
prescribed method will usually include details regarding:
When and how the insured should be notified of the claim

How the claim should be lodged
Institution of legal proceedings should the claim be repudiated
Activity 5.2
1. Koos’ policy stipulates that losses must be reported to the police in the first
instance, within 48 hours, and then to the insurance company in writing, within
another 48 hours. When his car is stolen, Koos immediately telephones the
insurance company, but goes to the police after six days. Can he claim?
5.5.1 Fraudulent Claims

With regard to fraudulent claims, there are various ways in which an insured may commit fraud.
Firstly, the insurer may claim for losses which he has not actually incurred or may try to claim an
amount in excess of the actual loss suffered. Secondly the insured may fabricate evidence to give
rise to a claim. Insurance policies will usually include provisions which deal with fraudulent claims,
such provisions may state that:
The fraudulent insured will lose his entire claim if it is in any part fraudulent
The fraudulent insured will lose any claim to damages he may have against the insurer
The policy will terminate upon discovery of any fraudulent behaviour on the part of the insured
5.6 The Doctrine of Subrogation

The doctrine of subrogation underpins the law of insurance and allows for the insurer to sue in the
name of the insured. It also prevents the insured from receiving both compensations from the insurer
as well as from a third party. In other words, the doctrine combats unjustified enrichment. The
doctrine allows the insured to recover any money that he may have paid-out to the insured. The law
of subrogation will only arise where the insured has a cause of action against a third party for
compensation of loss suffered by the said insured. The insurer then steps into the shoes of the
insured for the purpose of instituting legal action against the third party for any intentional or
negligent harm caused to the insured or his property.
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There are three requirements that must be satisfied before an insurer can institute a subrogated
claim against the third party.
The insurance contract entered into must be valid and enforceable

The insurer must have indemnified the insured for any loss that may be incurred on the
occurrence of an uncertain specified event
The insured loss must have been fully compensated for by the insurer
Reading
Read Chapter 8
Sutherland, P and Van der Bijal, C .2014. The Law of Insurance. In:
Scott, J.et al. 2014. The Law of Commerce in South Africa. 2nd ed. Cape
Town: Oxford University Press, 301-324
Revision Questions
1. What is the difference between indemnity and non-indemnity insurance?

Give some examples.
2. What are the four essential terms of the insurance contract?
3. What is meant by ‘a future uncertain event’?
4. What is the duty of disclosure? Why is it so important?
5. What are some of the reasons why a claim may be considered fraudulent?
6. When does an insurance contract terminate?
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Unit
6:
Labour Law
Unit 6: Labour Law
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Du Plessis, J.V. and Fouche´, M.A. (2019). A Practical Guide to

Labour Law. Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.

Press.

guide.
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6.1 Introduction
Labour law deals with all legal relationships that may arise in the workplace, be it individual (entered
into between the employer and an employee) or collective (entered into by several employees and
the employer) relationships. The employment relationship is governed by the employment contract
which is informed by the basic principles of the law of contract. There are further essential elements
of the employment contract that are regulated by the common law and endorsed by specific labour
legislation.
6.2 Sources of Labour Law in South Africa

6.2.1 Common Law
The common law relating to employment law, and in particular, the employment contract has been
inherited from the custom and practices of Roman-Dutch and English law brought into South Africa
in the early 1800’s. Whilst there has been major legislative development in this area of law, the
foundation of labour law still remains intact in the common law principles of contract.
6.2.2 Legislation
Numerous pieces of legislation have been promulgated to specifically deal with employment issues
as well as promote constitutional values such as fairness and equality. While the discussion of every
labour legislation is beyond the ambit of this guide, there are several Acts worth noting and which
continuously inform labour relations in South Africa. These include.
The Labour Relations Act 66 of 1995

The Basic Conditions of Employment Act 75 of 1997
The Employment Equity Act 55 of 1998
The Unemployment Insurance Act 63 of 2001
The Occupational Health and Safety Act 85 of 1993
The Compensation for Occupational Injuries and Diseases Act 130 of 1993
The Employment Services Act 4 of 2014
6.2.3 Collective Agreements

Employment conditions entered in terms of sectoral determinations or agreements between trade
unions and employer associations will provide a part of and take precedent over individual contracts
of employment in a particular industry or sector.
6.2.4 International Labour Standards

The South African state is constitutionally bound to refer to international and foreign law when
interpreting and developing our domestic laws. Therefore, the conventions, and recommendations of
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the International Labour Organisation and other international organisations must be considered by
the courts.
6.2.5 Constitutional Provisions

Section 23 of the Constitution states that everyone has the right to “fair labour practices”. Whilst the
right to fair labour practice has been entrenched in the law through the Constitution, it must be borne
in mind that such rights, as with most constitutional provisions, may be limited for justifiable reasons.
6.3 The Contract of Employment

6.3.1 Introduction
The ordinary contract of employment involves the rendering of labour or services by the employee to
his employer for remuneration. The employee in turn submits himself to the supervision and control
of the employer. The common law principles are still applicable however they have been largely
expanded by labour legislation. Thus where labour legislation is silent on a particular issue, the
common law will apply.
6.3.2 Various Contracts that may arise in the workplace
Locatio conductio operarum – Ordinary contract of employment

This contract may be defined as a reciprocal contract in terms of which an employee places his
services at the disposal of the employer at a determined or determinable remuneration in return
the employer acquires authority over the employee and exercises supervision regarding the
rendering of the employee’s services.
Locatio conductio operus – The contract of letting and hiring

This contract involves the letting and hiring of (piece) work between an employer and an
independent contractor. It may be described as a reciprocal contract between the parties in terms
of which the independent contract undertakes to build, manufacture, repair or alter a corporeal
thing within a certain period and in return the employer undertakes to pay the contract a specified
remuneration or reward.
Activity 6.1
1. Identify and discuss the advantages of being an employee versus an

independent contractor.
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6.4 Definition of ‘Employee’

The courts have favoured what is known as the ‘mixed’ or ‘dominant impression’ test. This test
requires a consideration of all the facts as evidenced from the agreement between the parties, trade
practices and customs. Some of the factors considered by the court will include:
That the person who alleges to be an employee is obliged to render his services personally and
is not allowed to delegate this obligation
That he has to keep fixed hours and is paid a regular wage or salary
That he is subject to the alleged employer’s disciplinary code
That he is entitled to benefits, such as membership of a pension fund or medical aid scheme
That he is subject to a degree of control by the employer
The above factors, when considered collectively, may assist in determining whether a person is, in
fact, an employee.
6.4.1 Presumption as to who is An Employee

Section 83A of the Basic Conditions of Employment Act and (Section 200A of the Labour Relations
Act), which took effect in August 2002, introduced a rebuttable presumption of who an employee is.
Section 83A provides as follows:
(1) A person who works for, or renders services to, any other person is presumed, until the contrary is
proved, to be an employee, regardless of the form of the contract, if any one or more of the following
factors is present
(a) The manner in which the person works is subject to the control or direction of another person;
(b) The person’s hours of work are subject to the control or direction of another person;
(c) In the case of a person who works for an organisation, the person is a part of that
organisation;
(d) The person has worked for that other person for an average of at least 40 hours per month
over the last three months;
(e) The person is economically dependent on the other person for whom that person works or
renders services;
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(f) The person is provided with tools of trade or work equipment by the other person; or
(g) The person only works for or renders services to one person.
(2) SubSection (1) does not apply to any person who earns in excess of the amount determined by
the Minister in terms of Section 6 (3).
(3) If a proposed or existing work arrangement involves persons who earn amounts equal to or
below the amounts determined by the Minister in terms of Section 6 (3), any of the contracting
parties may approach the CCMA for an advisory award about whether the persons involved in the
arrangement are employees.
The effect of this Section is that a person who earns less than the threshold (determined by the
Minister from time to time, currently R205 433.30 per annum) is presumed to be an employee if any
one of the above indicators is present. The onus is on the employer to prove the contrary. The result
of S83A is if an employer fails to prove that the person is an independent contractor, that person is
deemed to be an employee.
6.5 Essentials of an Employment Contract

The contract of employment, like any other contract, must comply with the basic requirements for a
valid contract. General requirements for the validity of a contract of employment:
6.5.1 Consensus
It is required that both parties have a serious intention to create mutual rights and duties to which
they are legally bound. Consensus is generally reached when there is an acceptance by one party of
the other’s offer e.g.: employee accepts the offer of employment made by the employer.
6.5.2 Capacity
The person must be legally capable of performing in terms of the contract. Some people have limited
capacity and therefore cannot enter into a contract e.g.: minors and persons married in community of
property.
6.5.3 Legal Competence

The parties to the contract of employment must be legal capable of performing in terms of the
contract.
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6.5.4 The Contract must be possible

The contract of employment must not be in conflict with the law. Further, the contract must be
physically possible to perform in that the employee must be able to render the agreed services to the
employer.
6.5.5 Formalities
If formalities are prescribed for the formation of the contract it must be observed.
6.6 Essentials of the Contract

A contract of employment is an agreement between two parties in terms of which one of the parties
(employee) undertakes to place his or her personal services at the disposal of the other party (the
employer) for an indefinite or determined period in return for a fixed or ascertainable remuneration,
and which entitles the employer to define the employee’s duties and to control the manner in which
the employee discharges them.
Therefore, a contract of employment is:
Voluntary
Between two parties
The employee agrees to perform certain specified and/or implied duties for the employer
For an indefinite or specified period
In return for payment of a fixed or ascertainable remuneration
Giving the employer a right to direct the employee as to the manner in his or her duties are
carried out
6.6.1 Agreement
It is required that both the employer and employee enter into a contract of employment freely and
voluntarily. No person can be compelled to work for another. Duress (forced – can be physical or
psychological), common misunderstanding about the material terms of the contract or
misunderstanding induced by intentional or unintentional misrepresentation will render the contract
void.
The agreement presupposes that at the time of contracting the parties were fully aware of the nature
of the duties to which they agreed and of the obligations i.e. employees renders personal services at
the disposal of the employer and the employer is required to remunerate the employee.
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6.6.2 Formalities
The common law does not impose any formalities when concluding a contract of employment. A
contract of employment is concluded when an employee unconditionally accepts the employer’s offer
of employment. Sections 28 and 29 of the BCEA requires that all employers who employ more than 5
employees to conclude agreements with the employees setting out certain particulars. Failure to
comply with this renders the contract void but it does mean that the employer may be subject to
certain penalties.
6.6.3 Commencement
A contract of employment commences when the parties have agreed to the essential terms e.g.:
remuneration; leave; hours of work and so on. The parties can agree to suspend the operation of the
contract for a particular period e.g.: the parties agree that the employee will commence working at
some future date.
The employment becomes fully enforceable from the moment the parties reach consensus on the
terms. However, it is not necessary that the parties reach agreement on each and every detail of the
conditions of employment, these can be finalised at a later date. However, if agreement is not
reached on fundamental terms such as duties or remuneration no contractual relationship is formed
unless in time the parties have taken to have tacitly (words/conduct/practices) consented to the
terms. Tacit terms are read into the contract because it is assumed that although the parties did not
include them expressly they would have done so had they thought about it at the time of concluding
the contract. Implied terms are read into the contract irrespective of the intention or wishes of the
parties – implied terms are deemed by law to form terms of contracts even if the contracting parties
were unaware of them.
6.6.4 Content
The BCEA requires that the employer provide an employee with certain essential details at the
commencement of employment, this includes but not limited to:
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The full name and address of the employer

The name and occupation of the employee or a brief description of the work
The place of work
The date of which employment commences
The hours of work
The wage or salary
The rate for overtime
Deductions
Leave
Notice period for terminating employment
Duration of employment
Safety and security
6.6.5 Specific Work

When the contract is concluded, the parties must agree on the work the employee will be required to
perform. The employee is obliged to do the agreed work provided that it is not unlawful or beyond
the area of skill of the employee.
6.6.6 Remuneration
The parties must agree on the remuneration to be paid to the employee at the conclusion of the
contract. Remuneration may be payable in cash and/or in kind. If remuneration is payable in money,
the amount there of need not be fixed but it must at least be reasonably ascertainable. Where
remuneration is paid in kind, a value must be attached thereto.
Think Point 6.2

It is common practice to pay labourers on wine farms partly in cash and
partly with cheap wine. Is this ethical? What are the social repercussions
of such employment practices?
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6.7 Duties of the Employer

The employer has a number of duties arising from the contract of employment. Should he fail or
refuse to comply with these obligations, he will be committing a breach of contract and the employee
will then have certain remedies at his disposal.
The employer has the following duties:
To accept the employee into his service

To provide the employee with work
To pay the agreed remuneration
To pay a quantum meruit
To provide safe working conditions
To comply with statutory duties
6.7.1 To accept the employee into his service

Because the rendering of services is a prerequisite for the payment of remuneration, it follows that
the employer will be committing material breach of the contract should he fail to take the employee
into his service. The employee will then be entitled to claim damages amounting to his actual loss, in
other words, the amount he would have earned in respect of the incomplete part of his period of
service.
6.7.2 To provide the employee with work

In certain circumstances, an employer is obliged to provide work for the employee. An employer has
to provide work, failing which he will be committing breach of contract for instance, the employer
must provide work for the employee where the amount of remuneration is based on the amount of
work done, or where the failure to provide work for the employee has the effect of reducing the status
of the employee.
Think Point 6.3

A client has asked you to provide six copies of a hundred-page contract
document within an hour. You ask the marketing assistant to give you a
hand and she refuses because photocopying is not her job. It is the job of
the secretary who is off sick. What now?
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6.7.3 To pay the remuneration agreed upon

It is the employer’s most important obligation to pay the employee the agreed remuneration. Where
there is no agreement regarding the time of payment, payment will usually take place at the end of
the period of service. Where the employee is working for an uncertain or indefinite period, he must
be paid on a regular basis. The general rule is that the employee must render his services before
receiving payment.
6.7.4 To pay quantum meruit (‘As much as deserved’)

A quantum meruit is a reasonable remuneration for services rendered. Where an employee
absconds from or abandons their job before its completion, he is not entitled to any remuneration,
not even a pro rata payment in respect of the work actually completed. The employer will be obliged
to pay the quantum meruit where the employee was bona fide (in good faith) in not completing the
work.
6.7.5 To provide safe working conditions

The employer is under an obligation to provide safe working conditions for the employee and must
take reasonable steps to ensure the safety of its employees. The employer may be held delictually
liable if an employee is injured due to the lack of safe working conditions.
6.8 The Employee’s Remedies

If the employer fails to comply with any of his obligations or fails to comply with them properly, he is in
breach of contract. The employee will then have certain remedies against the employer at his
disposal such as:
Cancellation of the employment contract

Claiming specific performance
Claiming damages
Refusal to work
Statutory remedies
6.8.1 Cancellation
Material breach of contract by the employer allows the employee to resile (abandon a position or
course of action) from the contract. When the employee claims cancellation of the contract,
it amounts to summary termination of the contract, as opposed to where the employee gives due
notice of termination. If the breach is less serious the employee may cancel the contract by giving the
required notice of his intention to terminate.
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6.8.2 Specific performance

Specific performance in the form of reinstatement after an unfair dismissal warrants attention.
Traditionally reinstatement of the employee was never ordered, they were simply entitled to claim
damages. A new trend discovered by courts is although reinstatement would normally not be
ordered, specific performance is not excluded as a remedy for the employee. The courts have
discretion to refuse specific performance and award damages instead if they deem it to be in the
public interest that specific performance should not be granted. The fact that the relationship
between the employer and employee has irretrievably broken down is one of the factors which may
induce the court not to award specific performance.
6.8.3 Damages
An employee who suffers a loss as a result of the breach of contract by the employer, may claim
damages against the employer. The amount of damages is calculated in accordance with the
remuneration which he would have received if the breach of contract had not taken place. The
employee must, however, take reasonable steps to mitigate his losses.
6.8.4 Refusal to Work

The court has held that employees may refuse to work if their employer has committed a breach of
contract. In one case the employer had failed to pay his employees their weekly wages on a Friday,
as a result of which the employees collectively refused to work after reporting for duty on the
following Monday. The court considered the refusal by employees justified; just as an employer is not
obliged to pay employees who fail to comply with their contractual obligations - “no work no pay”- the
employees may refuse to work if the employer fails to abide by his obligations. A refusal to work in
these circumstances does not constitute a strike, but rather a legitimate exercise of contractual rights
6.8.5 Statutory Remedies

In addition to common law remedies the employee may utilize the statutory remedies provided for in
our labour legislation. The Labour Relation Act, for example, provides dispute resolution measures in
a variety of cases, such as unfair dismissals, unfair labour practices, infringements in the freedom of
association, disputes over organisational rights and so forth. Generally speaking, a dispute can be
referred to a bargaining council or the CCMA (Commission for Conciliation, Mediation and
Arbitration) for conciliation. If conciliation fails, the dispute is arbitrated by the council or CCMA or
adjudicated by the Labour court, depending on the nature of the dispute. The Basic Conditions of
Employment Act puts mechanisms in place for the recovery of outstanding payments and the
Employment Equity Act provides for the resolution of unfair discrimination disputes.
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6.9 The Employee’s Duties

A contract of employment creates (expressly or tacitly) the following obligations for the employee:
To make his personal services available to the employer

To “warrant” his competence and reasonable efficiency
To obey the employer
To be subordinate to the employer
To maintain bona fides
To exercise reasonable care when using the employer’s property
To refrain from misconduct
6.9.1 To make his services available

An employee is obliged to make his personal services available to the employer. The rule at common
law is “no work, no pay”. The employer may not force the employee to perform work other than
agreed upon, unless the parties have agreed to the performing of other work. The employee must
commence working on the agreed date and must obey all lawful instructions given by the employer. If
he is absent without reason or consent, he is committing breach of contract and such absence may
be a reason for a summary dismissal,
6.9.2 To warrant his competence

When the contract of employment is entered into the employee tacitly guarantees that he is suitable
for the work and must therefore be able to do the work for which he was appointed. The standard of
competence which the employer is entitled to expect, will depend on factors such as the capacity in
which the employee is engaged, his level of skills and training or any promises made by the
employee concerning his skills and abilities
6.9.3 To obey the employer

The employee will be obliged to obey his employer and to perform all reasonable instructions.
Disobedience amounts to a breach of contract, but will not in all cases justify the dismissal. An
employment relationship is founded on mutual respect between the employer and employer, with the
employer is in a position of authority. The relationship is generally one of subordination. If an
employee refuses to obey an instruction of the employer dismissal may be justifiable if the instruction
was reasonable and fell within the job description of the employee. This indicates that an employee
is allowed to disobey an unreasonable or unlawful instruction of the employer.
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6.9.4 To be subordinate to the employer

The employer is in a position of authority and the employee is obliged to be subordinate to the
employer and to show him his due respect. Insubordination has been defined by the court as
meaning - ‘when the employee refuses to obey a lawful and reasonable command or request and
the refusal is wilful and serious (wilful disobedience), or when the employee’s conduct poses a
deliberate (wilful) and serious challenge to the employer’s authority’. Insubordination may assume a
number of forms from verbal defiance, to the most serious being a refusal to obey a reasonable
instruction. An employee will be committing a breach of contract should he behave in a defiant
manner and may be dismissed accordingly.
6.9.5 Maintaining bona fides (Good Faith)

The employee is obliged to act in good faith and not to do anything that may harm the relationship of
trust between himself and the employer. Dishonesty amounts to a breach of good faith and justifies
dismissal.
6.9.6 To exercise reasonable care when using the employer’s property

The employee must at all times exercise reasonable care when using the property of the employer.
Negligent behaviour by the employee whereby damage is caused to the employer’s property
constitutes a breach of contract.
6.9.7 To refrain from misconduct

Misconduct is said to have occurred when an employee disregards the rules of the workplace. The
Code states that every employer must adopt disciplinary rules which establish the standard of
conduct required of employees. The rule will vary according to the size and nature of the employer’s
business. The rules are intended to create certainty and consistency. Thus the employee must at all
times act in accordance with acceptable practices, standards and policies of his employer and may,
not engage in any form of misconduct. Misconduct constitutes a breach of contract and may justify
dismissal in appropriate circumstances.
6.10 The Employer’s Remedies

If the employee does not comply with his obligations, he is in breach of contract and the employer
will have the following remedies at his disposal:
Summary Dismissal
Specific performance
Damages
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6.10.1 Summary Dismissal

The employer is entitled to dismiss the employee summarily (without notice) when the latter has
committed a material breach of contract. Some accepted common law grounds for the summary
dismissal include:
Incompetence to do particular work

Refusal to work
Disobedience of reasonable commands
Rude behaviour towards the employer
Disclosure of trade secrets or the misuse of information obtained through his employment
Dishonesty in the scope of his duties, for example, fraud and theft. Dishonesty must be proved
Putting the employer’s property to private use
Misconduct, for example, drunkenness or assaulting co-workers or customers and
Insubordination, rebelliousness and conduct undermining discipline
In terms of legislation, a dismissed employee is entitled to outstanding remuneration for time served
and payment for all annual leave days to his credit. If an employee is summarily dismissed, he is not
entitled to notice pay. If he is dismissed on notice, he may be required to work during the notice
period; alternatively, the employer may exempt him from working the notice period, but must then
pay him in lieu of the notice.
6.10.2 Specific Performance

In some circumstances the courts are reluctant to order specific performance, for instance the court
is unlikely to compel a deserting employee to return to his employer. In cases of this nature the
employer will be entitled to damages only. However, specific performance in other circumstances
may be the appropriate order to make. For example, the employer A has a restraint of trade clause in
the contract of employment of X. X resigns and takes up employment with the competition. The
employer A applies to court for an order of specific performance i.e. that X complies with the terms of
the contract.
6.10.3 Damages
Whether the contract is cancelled or specific performance demanded, the employer is entitled to
claim damages from the employee if the behaviour or negligence of the latter causes him damages
or losses. The onus is on the employer to prove that the damages flowed from the breach of contract.
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6.11 Termination of the Employment Contract

The contract of employment may be terminated in the following ways:
By notice
By the conclusion of a specified period
By agreement
By death of the parties
By the insolvency of the parties
By the illness of the employee
By impossibility of performance
By cancellation (summary termination)
Redundancy of a post
By completing a specific task
6.11.1 By notice
If the contract of service was concluded for an unlimited period, it may be terminated by the giving of
due notice. Notice may, of cause, be given by either party. In other words, the employee may give
notice that he intends to terminate his services, that is, to resign, or the employer may give notice to
employee to terminate his services. Common law does not prescribe minimum periods of notice and
thus reasonable notice must be given, however, Section 37 of the BCEA prescribes notice periods
and requires notice to be in writing, unless the employee is illiterate.
6.11.2 By the conclusion of a specified period

Where a contract of service has been concluded for a specified period, it comes to an end when that
period expires and no notice is required. An offer of employment on a fixed term or the renewal of a
fixed term contract must be in writing and state the reasons for the limited-duration contract.
6.11.3 By agreement
The parties may terminate the contract by mutual agreement.
6.11.4 By death of the parties

The general rule is that the death of the employer does not terminate the contract of employment,
while the death of the employee terminates the employment relationship due to impossibility of
performance.
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6.11.5 By the insolvency of the parties

The trustee (or liquidator) of the sequestrated estate may terminate the contracts of employment only
after he has consulted with any registered trade union whose members are likely to be affected by
the termination of the contracts or with the employee’s themselves. The rationale behind the
prescribed consultations is that, if the employer’s business can be saved, all or some of the
employees may continue in employment and not lose their jobs.
An employee whose contract has been suspended or terminated, is entitled to claim compensation
from the employer’s insolvent estate for losses suffered as a result of the suspension or termination.
An employee whose contract has been terminated, is further entitled to claim severance pay from the
insolvent estate.
6.11.6 By the illness of the employee

The illness of the employee does not normally terminate the contract of service, but an employer is
entitled to dismiss the employee if the absence due to illness continues for an unreasonable
period.Note the employer must have a fair reason and follow a fair procedure before such dismissal.
6.11.7 By impossibility of performance

If it is objectively impossible for the employee to perform, he is not committing a breach of contract
and the contract of employment is terminated by the impossibility.
6.11.8 By cancellation
If one of the parties commits a material breach of contract, the other party is entitled to cancel the
contract.
6.11.9 Redundancy of post

The redundancy of a post offers a valid reason to the employer for terminating the service of his
employee, provided he gives sufficient notice of such termination to the employee. A post becomes
redundant only when no employee can be required to perform the duties attached to the post
anymore.
6.11.10 Completing a specific task

Where the employee has been appointed to perform a single task only, the contract lapses
automatically once the task has been completed.
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6.12 The Employer’s Delictual Liability

As a rule, an employer is liable to third parties for delicts committed by its employees, provided the
delict was committed during the course and scope of the employee’s employment. This doctrine, is
known as vicarious liability.
In order to hold the employer liable for the delicts of his employee, the following requirements must
be proved:
There must be an employer/employee relationship; and

The delict must have been committed by the employee in the course of the performance of his
duties, that is, ‘in the scope of employment’
6.12.1 Employer/Employee relationship

Before the employer can be held liable for delicts committed by an employee, the existence of a
contract of employment must be proved. The person must be an ‘employee’ at the time the delict is
committed.
6.12.2 The delict must have been committed by the employee in the course of the
performance of his duties
The employer is not liable to third parties for all delicts committed by his employee, but only those
committed during the scope of employment. Whether an action falls within the scope of an
employee’s duties depends on the particular circumstances of each case. The employer will
generally be liable in the following instances:
While the employee was carrying out the duties of the employer
When the employee was acting within the scope of his employment, whether during or after
working hours
If the employee performs an illegal act necessary for the carrying out of his duties
If the employee performed an act which was prohibited by the employer, but nevertheless
promoted the interests of the employer
Where the employee committed a delict while promoting partially the interests of the employer
and partially his own interests
Before the employer will be held liable, it must be proved that the employee was the cause of the
delict and is legally liable for such delict. Where the employee is liable, the employer may be sued as
a co-defendant. Both the employer and employee are jointly and severally liable for the delict.
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6.13 Overview of Labour Legislation

6.13.1 The Basic Conditions of Employment Act 75 of 1997
The Basic Conditions of Employment Act (BCEA) aims to give effect to the constitutional provision of
fair labour practices. It does this by:
Establishing minimum conditions of employment that serves to protect all employees

Regulates variation of minimum conditions by various labour mechanisms
Ensures decent work standards in accordance with international standards; and
Prohibits exploitative terms and conditions of employment
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6.13.2 The Employment Equity Act 55 of 1998

Constitutional equality forms the backdrop of the Employment Equity Act. The Act aims to:
Prohibit unfair discrimination

Provide for affirmative action measures and
Promoting equal opportunity in the workplace
The EEA states that ‘no person’ may unfairly discriminate against an applicant for a job or an
employee in terms of ‘any employment policy or practice’.
To better understand the EEA, it is important to understand the following constitutional
provisions:
The Equality Clause (Section 9(1))
In terms of Section 9(1) of the Constitution everyone is equal before the law. The right to equal
protection of the law is thus guaranteed to everyone.
The Affirmative Action Clause (Section 9(2))

This Unit requires that legislative measures be implemented to give effect to restitutionary measures
- known as affirmative action measures. Equality includes equal enjoyment of all rights and
freedoms, not only in society in general, but also in the workplace. Affirmative action is the measure
produced by law to create equal opportunities in the workplace for all people in South Africa.
Affirmative action is necessary as a positive action to overcome institutionalized discrimination.
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The Anti-Discrimination Clause (Section 9(3) and (4))

The equality clause does not prohibit discrimination but it does prohibit unfair discrimination. Unfair
discrimination involves treating people in a way which impairs the fundamental dignity of a person.
Discrimination means different treatment of different people. Discrimination can be both fair or unfair.
Fair discrimination occurs when there is a justifiable basis for the discrimination example affirmative
action. Unfair discrimination is different treatment of people on an arbitrary ground or using
inappropriate criteria to differentiate between one person or group and another.
In terms of Section 9(3) no-one may unfairly discriminate, directly or indirectly, against another
person on any of the following grounds: race, gender, sex, pregnancy, marital status, ethnic or social
origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and
birth. See (The Employment Equity Act 55 of 1998) which, read with the Constitution, seeks to
achieve equity in the workplace, by:
Promoting equal opportunity and fair treatment in employment through the elimination of unfair
discrimination and
Implementing affirmative action measures to redress the disadvantages in employment
experienced by designated groups, to ensure their equitable representation in all occupational
categories and levels in the workforce
The list of “stated grounds” is preceded by the word “including”, which indicates that unfair
discrimination is not limited to the stated grounds only. This is not a closed list and other grounds of
discrimination, not mentioned in Section 9(3), may also result in unfair discrimination.
Proof of Discrimination
If discrimination on one of the stated grounds is alleged, the presumption is that the discrimination is
unfair. The onus is then on the respondent to show that the discrimination is not unfair. If
discrimination is alleged on a ground not listed in Section 9(3), the onus rests with the person who
alleges discrimination to show that there was discrimination and that it was unfair. If the differentiation
is not on the listed grounds in 9(3), the discrimination can be classified as an analogous ground.
There is no presumption of unfairness with relation to analogous grounds as provided for in 9(3).
The applicant has to show that the law or conduct is based on attributes or characteristics which
have the potential to impair the fundamental dignity of persons or can seriously affect the person is a
serious manner. In the case of Harksen v Lane and Others [1997] (11) BCLR 1489 the Constitutional
Court set down 3 factors which must be considered when determining whether the discrimination has
an unfair impact:
(a) The position of the complainants in society and whether they have suffered in the past from
patterns of disadvantage.
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(b) The nature of the provision or power and the purpose sought to be achieved by it. If its purpose is
not directed, at impairing the complainants but is aimed at achieving a worthy and important societal
goal, such as, for example, the furthering of equality for all, this purpose may, depending on the facts
of the particular case, have a significant bearing on the question whether complainants have in fact
suffered the impairment in question.
(c) The extent to which the discrimination has affected the rights or interests of complainants and
whether it has led to an impairment of their fundamental human dignity or constitutes an impairment
of a comparably serious nature.
6.13.3 Unemployment Insurance Act 63 of 2001

The purpose of the Act is to assist employees that are undergoing temporary unemployment by
means of short-term financial assistance. Employees that may claim financial assistance, may be
unemployed for various reasons which include illness, maternity leave and leave after the adoption
of a child. The dependents of the employee will also be entitled to claim unemployment benefits
upon the death of the employee.
6.13.4 Compensation for Occupational Injuries and Diseases Act 130 of 1993
The Compensation for Occupational Injuries and Diseases Act 130 of 1993 provides for payment of
compensation to employees who have sustained work related injuries or diseases. The employee
will be entitled to claim compensation irrespective of whether the employer was negligently or
intentionally the cause of such injury or disease. Compensation may also be claimed by the
dependents of the employee if such employee had died as a consequence of the work related injury
or disease.
6.13.5 Occupational Health and Safety Act 85 of 1993

The Occupational Health and Safety Act 85 of 1993 requires the employer to bring about and
maintain, as far as is "reasonably practicable" a work environment that is safe and without risk to the
health of the worker. The main purpose of the Act is to provide compensation for employees
employed by a mine and who may contract respiratory diseases as a consequence of their work.
6.13.6 Employment Services Act 4 of 2014

The overall purpose of the Act is to stimulate employment in the country. This will be achieved by
improving:
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Employment prospects for vulnerable work seekers;

Opportunities for new entrants to the labour market to gain work experience;
Re-employment prospects for employees facing retrenchments;
Access to education and training for work seekers (in particular vulnerable work seekers);
Promoting the employment of foreign nationals in a manner that gives effect to the Constitutional
right to fair labour practices but at the same time not impacting adversely on existing standards
and the rights and expectations of South African workers
The purposes are to be achieved by:
Providing free public employment services

Providing free services to citizens which may include the registration of job seekers or referrals to
training and career information
Advise workers on access to social security benefits
Assist the exchange of information between work seekers and employers
Provide career counselling to work seekers
Activity 6.1
List five requirements by employees in terms of the Occupational Health1.

and Safety Act?
6.13.7 Labour Relations Act 66 of 1995

1. Introduction
The Labour Relations Act 66 of 1995 (LRA) has been amended by The Labour Relations
Amendment Act 6 of 2014. The amendments became operational on the 1st of January 2015. The
main objectives of the Act are to advance economic development, social justice, labour peace and
democratization of the workplace. These goals are to be reached by furthering the primary objectives
of the Act, which are:
To give effect to the fundamental rights conferred by the Bill of Rights contained in the
Constitution
To give effect to obligations incurred by the Republic of South Africa as a member state to the
International Labour Organisation
To provide a framework for collective bargaining between trade unions and employers and
employer’s organisations and
To promote orderly collective bargaining, collective bargaining at sectoral level, employee
participation in decision making in the workplace and the effective resolution of labour disputes
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As the Act is applicable to every employer and every employee, it is necessary to determine who an
employer and who an employee is.
An “employee”, according to Section 213 of the Act, can be described as:
Any person, excluding an independent contractor, who works for another person or for the State
and who receives or is entitled to receive any remuneration; and
Any other person who in any manner assists in carrying on or conducting the business of an
employer
Whether a person is an employee or an independent contract is further clarified by Unit 200A of the
LRA (and Section 83 of the BCEA).
Differences between a contract of employment and a contract of work:
In the case of SA Broadcasting Corporation v McKenzie (1999) 20 ILJ 585 (LAC), the LAC set out
the main differences between a contract of employment and contract of work.
Below is a Table reflecting the essential characteristics and differences between an employee and an
independent contractor.
Essential Characteristics between Employee and Independent Contractor
EMPLOYEE INDEPENDENT CONTRACTOR
(Contract of employment) (Contract of work)
Rendering of personal services by the employee The performance of a certain specified work or
to the employer. the production of a certain specified result.
The employee is at the beck and call of the Not obliged to perform the work himself or to
employer to render his personal services. produce the result himself, unless otherwise
agreed.
The employer may choose when to make use of The independent contractor must perform the
the services of the employee. work within the period fixed by the contract.
E m p l o y e e i s o b l i g e d t o o b e y t h e l a w f u l Is subservient to the contract, not under the
commands, orders or instructions of the supervision or control of the employer. Not
employer. obliged to obey the instructions regarding the
manner in which the task is to be performed.
Contract of service is terminated by the death of The death of the parties to a contract of work
the employee. does not necessarily terminate it.
Contract of service terminates on expiration of Contract of work terminates on completion of the
the period of service. specified work or on production of the specified
result.
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Section 200A provides that if any one or more of the following factors are present, the person who
works for or renders services to another person is presumed to be an employee, regardless of the
form of contract. The onus is on the employer to prove the contrary.
A person is presumed to be an employee if he:
Is subject to the control or direction of another person;

Works hours that are subject to the control of another person;
Forms part of the organisation;
Has worked for another person for an average of at least 40 hours per month over the three
months;
Is economically dependent on the person for whom he works;
Is provided with tools of trade or work equipment by the other person; or
Only works for one person
The presumption does not apply to persons who earn in excess of the threshold amount stipulated
by the Minister in terms of the BCEA which is currently R205 433.30. Included in the definition of
“employee” are casual employees, managers and directors of a company, shop stewards who are
employees, migrant workers, probationary employees and other temporary employees.
An employee who was dismissed and who, therefore, can no longer be termed an “employee”
has access to the dispute resolution procedures of the LRA to challenge the fairness of such
dismissal
An “employer” is a person who receives services from an employee for remuneration or who is
assisted in the conduct of its business by an employee.
2. Collective Bargaining
Collective bargaining is generally defined as a process through which employers (employer
organisations) and employees (trade unions) engage in bargaining about terms and conditions of
employment.
The parties can only bargain about matters of mutual interest which is:
Terms and conditions of employment

Terms of the relationship between the trade union and employer and
Set out mechanisms to resolve disputes
The Courts have held that interest disputes (e.g. power play; future wages; terms and conditions of
employment) must be dealt with in the bargaining process through negotiation. Purpose of the
bargaining process is to reach agreement on terms and conditions of employment. If negotiations
succeed, the parties form a collective agreement, which takes precedence over any individual
employment contract.
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3. Strikes
Section 213 of the LRA defines a strikes as the partial or complete concerted refusal to work, or the
retardation or obstruction of work by persons who are or have been employed by the same employer
or by different employers, for the purpose of remedying a grievance or resolving a dispute in respect
of any matter of mutual interest between employer and employee.
a) Circumstances when strikes are prohibited
In certain situations, employees are prohibited from striking:
Collective agreement - parties may agree by collective agreement as to when a strike will be
prohibited
Dispute referred to arbitration - parties may agree to refer a specific dispute to arbitration and are
prohibited from striking before a process of arbitration has been undertaken (compulsory
arbitration)
Essential services - certain services may be of such importance that going on strike would
prejudice the public (e.g. parliamentary and police service are specifically mentioned)
b) Procedure for Protected Strikes

The 1995 LRA prescribes certain procedures that must be complied with in order for employees to
enjoy full protection while participating in “protected” industrial action (also termed procedural strike
or lock-out).
1. Step 1: Refer the matter to Council or CCMA

2. Step 2: During Conciliation at the CCMA – a ‘certificate of non-resolution’ is issued
3. Step 3: Union or Employer are to give the other party 48 hours written notice before
commencement of strike or lock-out (if the State is the employer, 7 days’ notice is required)
4. Step 4: Protected strike or lock-out commences after expiry of notice period
c.) Consequences of a Protected Strike
Employees may not be dismissed for striking. The employee may however be dismissed for
misconduct during a strike or for operational requirements of the employer. The employer must
however have a fair reason for the dismissal and must follow a fair procedure
Involvement in a protected strike does not amount to a delict or breach of contract
The employer is not obliged to remunerate strikers
Civil proceedings may not be instituted against a person for his involvement in a protected strike
unless his conduct constitutes an offence
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d.) Consequences of an Unprotected Strike
The Labour Court may interdict the strike

The Labour Court may award just and equitable compensation for any loss attributable to the
strike, having regard to the following factors
Whether attempts were made to comply with the provisions of the LRA and the extent of those
attempts
Whether the strike or lock-out was premeditated
Whether the strike or lock-out was in response to unjustified conduct by another party to the
dispute
Whether there was compliance with a Labour Court order or interdict restraining any person from
participating in industrial action
The interests of orderly collective bargaining
The duration of the strike or lock-out
The financial position of the employer, trade union or employees.
Involvement in an unprotected strike may constitute a fair reason for a dismissal, provided that a
fair procedure is followed
4. Lock-Outs
A lock-out is the employer’s economic weapon during the collective bargaining process to induce
workers to accept his offer or proposal. A lock-out is therefore the exclusion from the workplace.
From the definition provided in the Act, two elements are implied:
An act by the employer (the exclusion of employees)

With the specific purpose of persuading the employees to accept the proposal of the employer
If an employer locks out employees in response to a protected strike it is not necessary for the
employer to follow the Section 64 procedure as the union has already followed the procedure for its
strike action. It is merely necessary for the employer to give notice (48 hours or 7 days) before the
lock-out commences. The consequences of a protected and unprotected lock-out respectively are
similar to the consequences that follow upon a protected and unprotected strike.
5. Dismissals
In terms of Section 185 every employee has the right not to be unfairly dismissed. Section 186(1) of
the LRA sets out several grounds which may constitute a dismissal. Section 188 on the other hand
sets out the requirements for a fair dismissal.
A dismissal means that:
An employer has terminated employment with or without notice

An employee employed in terms of a fixed term contract of employment reasonably expected the
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employer
To renew a fixed term contract of employment on the same or similar terms but the employer
offered to renew it on less favourable terms, or did not renew it, or
to retain the employee in employment on an indefinite basis but otherwise on the same or similar
terms as the fixed term contract, but the employer offered to retain the employee on less
favourable terms, or did not offer to retain the employee
An employer refused to allow an employee to resume work after she
Took maternity leave in terms of any law, collective agreement or her contract of employment
An employer who dismissed a number of employees for the same or similar reasons has offered
to re-employ one or more of them but has refused to re-employ another or
An employee terminated employment with or without notice because the employer made
continued employment intolerable for the employee or
An employee terminated employment with or without notice because the new employer, after a
transfer in terms of Section 197 or Section 197A, provided the employee with conditions or
circumstances at work that are substantially less favourable to the employee than those provided
by the old employer
a.) Automatically Unfair Dismissals

Section 187 of the LRA deals with some dismissals that are deemed to be automatically unfair.
A dismissal is automatically unfair if the employer’s reason for the dismissal is because
An employee exercises his right to freedom of association

An employee has disclosed information that he is lawfully required or entitled to give another
person
An employee is exercising any of his rights conferred by the Act
An employee participates in any proceedings in terms of the Act
An employee participates or supports a protected strike
An employee refuses to perform duties while they are participating in a protected strike or during
a lock-out
An employee refuses to accept the employer’s demands during a lock-out
An employee’s pregnancy, intended pregnancy or any other reason relating to the pregnancy
Employer’s unfair discrimination
In terms of a transfer or reason related to a transfer in terms of Section 197 or 197A
An employee made a protected disclosure
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b.) Requirements for a Fair Dismissal

An employer must prove that a dismissal is based on one of following reasons:
Misconduct
Incapacity due to ill health or Poor Work Performance
Employer’s Operational Requirements
To ensure the fairness of a dismissal in the above mention instances, there must be substantive
fairness and procedural fairness. If an employee claims that he was dismissed, but the employer
denies this, the onus is on the employee to prove the existence of the alleged dismissal. Once the
existence of a dismissal has been proved, the onus then shifts to the employer to prove that such
dismissal was fair.
i.) Dismissal for Misconduct

Misconduct is prevalent in every workplace and thus a prudent employer will and generally does
adopt a disciplinary code of conduct. According to the Act, when disciplining an employee, the
concept of progressive discipline must be utilised. This basically means that discipline should
incorporate counselling and warnings before dismissal is found to be an appropriate sanction.
However, there are instances whereby the misconduct is of such a serious nature that the only
appropriate sanction would be dismissal. In other words, the misconduct has severed the
relationship of trust between the parties.
As a general rule, serious misconduct (prior warnings not required) or repeated instances of the
similar type of misconduct will warrant dismissal. For example, an employee may be dismissed for
insubordination, drunkenness at work, theft or absenteeism. Dismissal for less serious forms of
misconduct will only be justified where the employee has previous warnings and has been
counselled on the sanction that may be imposed should such misconduct be repeated.
ii.) Dismissal for Incapacity due to poor work performance

Incapacity includes incapacity due to ill-health and poor work performance. If an employee is
incapable of doing the work because he lacks the skills, knowledge or ability and consequently does
not meet the required standards of performance of the employer; he may be dismissed for such
incapacity.
An employee should not be dismissed for unsatisfactory performance unless the employer has-
Given the employee appropriate evaluation, instruction, training, guidance or counselling; and
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After a reasonable period of time for improvement, the employee continues to perform
unsatisfactorily
iii.) Incapacity in relation to Ill health or Injury

Incapacity on the grounds of ill health or injury may be temporary or permanent. If an employee is
temporarily unable to work in these circumstances, the employer should examine the degree of the
incapacity or the injury. If the employee is likely to be absent for an unreasonably long period, the
employer should investigate all the possible alternatives short of dismissal. When alternatives are
considered, relevant factors might include:
The nature of the job

The period of absence
The seriousness of the illness or injury
And the possibility of securing a temporary replacement for the ill or injured employee
In cases of permanent incapacity, the employer should ascertain the prospect of securing alternative
employment, or adapting the duties or work circumstances of the employee to accommodate the
employee's disability. The cause of the incapacity may also be relevant. In the case of certain kinds
of incapacity, for example alcoholism or drug abuse, counselling and rehabilitation may be
appropriate steps for an employer to consider. Particular consideration should be given to
employees who are injured at work or who are incapacitated by work-related illness. The courts have
indicated that the duty on the employer to accommodate the incapacity of the employee is more
burdensome in these circumstances.
iv.) Dismissal for Operational Requirements

Another valid reason for dismissal is the operational requirements of the employer such as the
economic, technological, structural or similar needs of the employer – relate to the redundancy of
posts consequent to a restructuring of the employer’s enterprise. Section 189 is applicable to so-
called “minor” retrenchments while both Section 189 and 189 A are applicable to “major”
retrenchments.
6. Unfair Labour Practices

Section 23(1) of the Constitution guarantees everyone a right to fair labour practices. The LRA
expounds that rights in Section 185(b) which states that every employee has the right not to be
subjected to an unfair labour practice.
Section 186 (2) defines an “Unfair labour practice” as:
An unfair act or omission that arises between an employer and an employee involving-
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Business Law
(a) unfair conduct by the employer relating to the promotion, demotion, probation (excluding disputes
about dismissals for a reason relating to probation) or training of an employee or relating to the
provision of benefits to an employee;
(b) the unfair suspension of an employee or any other unfair disciplinary action short of dismissal in
respect of an employee;
(c) a failure or refusal by an employer to reinstate or re-employ a former employee in terms of any
agreement; and
(d) an occupational detriment, other than dismissal, in contravention of the Protected Disclosures
Act, 2000 (Act No. 26 of 2000), on account of the employee having made a protected disclosure
defined in that Act. (Section 186(2) added by Section 41(c) of Act 12 of 2002).
To note:
The protection against unfair labour practices only applies to a specified list of actions.
An employee cannot commit an unfair labour practice.
The definition makes provision for the protection of employees against unfair labour practices.
This protection does not extend to employers – an employee cannot commit an unfair labour
practice;
Reference is only made to an employer and employee relationship [, thus an unfair labour
practice will only arise within the domain of an employment relationship that is currently in
existence;
The list unfair labour practices is exhaustive. If the conduct of an employer has not been listed,
then it will not amount to an unfair labour practice
7. Dispute Resolution
a.) Mechanisms of Dispute Resolution
The LRA provides for various ways in which a dispute may be resolved:
Mediation/conciliation
Arbitration
Court order
Strike action
b.) Mediation/Conciliation
Irrespective of how the dispute is ultimately resolved, the first step in all the processes is conciliation
or mediation. This prevents the costs of strike action or litigation before all other alternatives have
been exhausted. Each type of dispute is dealt with by the LRA which specifies which process will
lead to a final determination. The person mediating or conciliating has no power to compel the
parties to do anything or to elicit evidence from them. Therefore, it has been said that the degree of
success of such processes is dependent on the good faith of the parties to attempt to resolve the
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Business Law
dispute.
c.) The Role of the Judiciary

The CCMA, particularly its arbitrators, has the power to make awards that are binding on the parties.
Its powers are exercised in a quasi-judicial tribunal. Arbitrators at the CCMA are not judicial officers
and their awards may be reviewed by the relevant and competent court.
d.) The Labour Court

This court has the status of a superior court, with powers equal to those of a Provincial Division of the
High Court. One of the important functions of the Labour Court is the granting of interdicts (order
made, usually for a limited period, compelling a party to perform or not to perform a specific act) also
known as ‘interim orders’.
Urgent interim orders may be granted ex parte basis, which means that the party against whom the
order is sought, may not even be present. In the labour law area, it is a requirement that, when
seeking an urgent order, the other party must be given at least 24-hour notice that such application is
being made, so that they have an opportunity to oppose the granting of the order, should they wish to
do so.
The court will enquire into the prima facie circumstance of the case in order to grant the relief sought
and in particular will require evidence on the following;
As to the actual harm suffered, or the imminence thereof

The party against whom the relief is sought is acting in contravention of the law or in breach of an
agreement and
The urgency of the matter
The court will not make a final determination but due to the urgency of the matter, it will issue an
interim order (limited duration of validity). A return date will be set by the court upon which both
parties will appear in court with prepared arguments and the court will make a final order regarding
the matter.
Another important function of the Labour Court is to review decisions reached by the CCMA
arbitrators. Since arbitrator’s awards are final and binding, it is not possible to appeal their decisions.
Rather the decisions may be taken on review. The process of review incorporates examining the
procedure followed by commissioner and specifically whether the relevant factors were taken into
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Business Law
consideration, whether every party to the arbitration was afforded an opportunity to make
representations etc.
e.) The Labour Appeal Court

This Court hears appeals on decisions referred to it from the Labour Court. It has the same status as
the Supreme Court of Appeal. It is possible to thus approach the High Court or refer an appeal to the
Supreme Court of Appeal on a labour matter. The Labour Court and the Labour Appeal Court may
have concurrent jurisdiction with the High Court but by virtue of them being specialist courts, labour
matters are generally referred to them.
f.) The Constitutional Court

The Constitutional Court is the final and absolute judicial authority on all legal issues but it is not a
court of first instance. The Constitutional Court has the power to consider any pieces of legislation
referred to it or any decisions of inferior courts based on the assertion that such decisions are not in
accordance with the values spirit and objectives of the Constitution.
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Business Law
Revision Questions
1. What is the difference between locatio conductio operarum and locatio

conductio operis?
2. What would a typical contract of employment contain?
3. What are the common law duties of the employer?
4. What is quantum meruit?
5. What are the common law duties of the employee?
6. Is the employer liable for the delicts of an employee?
7. What is the purpose of the Basic Conditions of Employment Act (BCEA)?
8. What are the remedies for breach of an employment contract?
9. What is the purpose of the Labour Relations Act?
10. What is unfair discrimination?
11. What factors should an employer should bear in mind when dismissing an
employee?
12. List six dismissible offences
13. Who is responsible for compensating workers for occupational injuries?
14. What happens to a worker who is permanently disabled?
15. What is the responsibility of the employer with regards to health and
safety in the workplace?
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Business Law
Bibliography
Bradfied & Lehmann ( 2013) Principles of the Law of Sale and Lease. Third Edition. Juta.
Scott J (consult ed) et al (2014) The Law of Commerce in South Africa. Second Edition. Oxford.
Scott J (consult Ed) et al (2014) The Law of Commerce in South Africa. Second Edition. South
Africa: Oxford University Press.
Hutchison, DB and Pretorius, CJ (Eds) (2012) T h e L a w o f C o n t r a c t i n S o u t h
Africa. Second Edition. South Africa: Oxford University Press Southern Africa.
McGregor M (ed) et al (2014) Labour Law Rules. Second Edition. Siber Ink.
Reading J. Scott, D. Baqwa, S. Eiselen, T. Humby, M. Kelly-Louw, I. Konyn, S. Kopel, A.
Mukheibir, H. Schoeman, S. Scott, N. Smit, P. Sutherland, C. Van Der Bijl (2009) The Law of
Commerce in South Africa. Cape Town, South Africa: Oxford University Press.
Scott, D. Baqwa, S. Eiselen, T. Humby, M. Kelly-Louw, I. Konyn, S. Kopel, A. Mukheibir, H.
Schoeman, S. Scott, N. Smit, P. Sutherland, C. Van Der Bijl (2009) The Law of Commerce in
South Africa. Cape Town, South Africa: Oxford University Press.
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Business Law
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BUSINESS LAW

Bachelor of Commerce in International Business

We hope you enjoy the module.

Aims of this Module

Describe the legal framework within which businesses operate;

C. Learning Outcomes and Associated Assessment Criteria of the Module

D. How to Use this Module

Special Feature Icon Description

The Learning Outcomes indicate what aspects of the particular

The Associated Assessment Criteria is the evaluation of student

A think point asks you to stop and think about an issue.

You may come across knowledge check questions at the end of

You may come across self-assessment questions that test your

Case studies are included in different sections in this module

VIDEO You may come across links to videos as well as instructions on

Unit Learning Outcomes

Prescribed and Recommended Textbooks/Readings

Du Plessis, J.V. and Fouche´, M.A. (2019). A Practical Guide to Labour

Hutchison, D., Pretorius, C.J. and Naude´, T. (2022). The Law of

Scott, J. et al. (2020). The Law of Commerce in South Africa. Third

1.1 The Relevance of Law

1.2 A Brief History of South African Law

1.3 Fundamental Concepts

1.3.2 The State

Think Point 1.3

1.3.3 Rule of Law

Pharmaceutical Manufacturers Association of SA, in re: Ex Parte Application of President of

1.4 Legal Relationships

1.4.2 Private Legal Relationships

Corporeal Property (movable or immovable property)

1. Distinguish between Public and Private Relationships and provide an

1.5 Types of Legal Right(s)

c) Characteristics of Real Rights

(iv) Real rights do not lapse when the holder dies.

d) Characteristics of Personal Rights

(iii) Personal rights lapse when the holder dies.

Table 1: Real Rights and Personal Rights

1.6 Legal Liability

In private relationships liability will arise in the following instances:

1.7 Sources of Law

Figure 1.1: Hierarchy of Sources

Table 1: Theories of Contract

Figure 1.2: Process for making Primary and Secondary Legislation

Legislation specifically relating to commercial activity:

Table 1.3: Most Important National Statues Applicable to Commercial Activity

iii. Judicial Precedent

iv. Common Law

vi. Customary Law

vii. Foreign Law

1.8 The Law and Commercial Activity

1.8.2. Law recognises different kinds of property

1.8.3. Law facilitates and upholds business agreements

Contracts of Purchase and Sale

1.8.4. Law is the foundation of corporate activity

1.8.5. Law legitimises state regulation of commercial activity

1.8.6. Law provides an authoritative mode of dispute resolution

1. Explain 'legal liability'.

Unit 2: The Law of Contract

Unit Learning Outcomes

Prescribed and Recommended Textbooks/Readings

Du Plessis, J.V. and Fouche´, M.A. (2019). A Practical Guide to Labour

Hutchison, D., Pretorius, C.J. and Naude´, T. (2022). The Law of

Scott, J. et al. (2020). The Law of Commerce in South Africa. Third

The agreement must be lawful