Chapter 8 - POSSIBILITY AND CERTAINTY PDF

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CHAPTER 8 POSSIBILITY AND CERTAINTY 8) INTRODUCTION 8.1) THE GENERAL RULE: IMPOSSIBILTY OF PERFORMANCE PREVENTS THE CREATION OF OBLIGATIONS Therefore a contractual obligation must be possible to perform for it to be valid. Eg of contracts that are void due to with this requirement sale of object tha...

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CHAPTER 8 – POSSIBILITY AND CERTAINTY 8.1) INTRODUCTION 8.1.1) THE GENERAL RULE: IMPOSSIBILTY OF PERFORMANCE PREVENTS THE CREATION OF OBLIGATIONS  Therefore a contractual obligation must be possible to perform for it to be valid.  Eg of contracts that are void due to non-compliance with this requirement = sale of object that can’t be delivered – had been destroyed at time of conclusion of contract i.e. original painting OR of object that doesn’t exist i.e. portion of land – incapable of subdivision.  Read rest on pg 206.

8.1.2) DIFFERENT TYPES OF IMPOSSIBILITY  Not all types of impossibility prevent creation of contractual obligations.  For the exclusion of creation of contractual obligations – impossibility = certain quality.  NB to distinguish between impossibility that exists at time of conclusion of contract and impossibility that arises subsequently.  Therefore these are the f.f classifications:

8.1.2.1) Subjective (relative) and objective (absolute) impossibility  For a performance to be impossible not sufficient that a particular party cannot perform (subjective impossibility).  Impossibility must be so serious – nobody can render performance (objective impossibility).  Subjective: o Eg: party agrees to make payment but doesn’t at time of agreement have money to pay/ agrees to deliver goods but doesn’t have them in supply. o Impossibility shouldn’t influence creation of obligations.  Objective: o Eg: party agrees to deliver an original painting, unbeknown to parties, has been destroyed in fire. o Here nobody can perform no matter how hard they try.  Subjective inability to receive/ make use of performance ≠ entitle party to escape liability.  Therefore if person books an overseas tour but unable to make use of performance because they unknowingly don’t qualify for a visa – booking stays valid i.t.o CL.  H/ever consumer may use s 17 of CPA to cancel it – consumer doesn’t have to rely on CL of initial impossibility to escape liability.

8.1.2.2) Factual and practical impossibility  Application of objective impossibility in practice can be difficult.  Consider f.f scenario: o Parties enter into agreement of sale of plastic ducks. o They believe to be in container on freight ship. 1

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Unknown to them – container fell into sea on prev. day. So unlike in case of destroyed painting above – subject matter of sale = exists at time of conclusion of contract. Therefore performance = factually possible. Seller could still retrieve ducks through expensive feat of deep-sea exploration and cost = disproportionate to their value. Therefore – law recognises performance = practically/ economically impossible = no obligation rises. Crts don’t easily grant this.

8.1.2.3) Legal impossibility  One of requirements for validity = lawful/ legal.  Question rises: if at time of conclusion of contract, its legally impossible to render performance, is contract void due to non-compliance with requirement of possibility, or void due to non-compliance with requirement of legality?  Impossibility flows from illegality – preferably legality requirement has not been met.  Often things that cannot be traded i.e human tissue – regarded as impossible (haven’t met possibility requirement) not illegal.  Difference is important: o If void due to illegality – claims for restitution are regulated by par delictum rule – bars claims in certain cases where parties are tainted by illegality. o If void due to impossibility – par delictum rule doesn’t apply.

8.1.2.4) Initial impossibility, supervening impossibility and making performance impossible  Initial impossibility: o Impossible to perform contract at time of its conclusion. o If impossibility arises after conclusion of contract – valid obligations arise but obligations could = terminate or continue to exist (depends on cause of impossibility).  Supervening impossibility: o Obligations can no longer be performed because performance – objectively/ absolutely impossible after conclusion of contract. o Eg: A rents house to B but it’s destroyed in fire after conclusion of contract – obligations = terminate.  If performance is made impossible through the fault of a party – treated differently.  Eg: A deliberately sets fire to house = inhabitation is impossible and obligations don’t terminate.A commits b.o.c and B can claim damages and/or cancel contract.

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8.1.3) EXCEPTIONAL CASES: LIABLITY DESPITE IMPOSSIBILITY 8.1.3.1) Contemplation of impossibility and the assumption of risk  Gen rule: objective impossibility doesn’t give rise to obligations.  Above gen rule not applied uniformly in SA law.  Exception = test: if both parties contemplate impossibility and don’t provide for it in contract, the parties are not released from performance if impossibility occurs, therefore obligations still arise. (Wilson v Smith) – why: because parties assumed that the one party would bear the risk of impossibility, justifying such party of protection of gen rule.  If only one party foresaw or should’ve foreseen impossibility – the party who did not foresee the impossibility can claim delictual damages, if the one party wrongfully and culpably created belief of valid contract.

8.1.3.2) Warranty: guaranteeing performance  Warranty = term inserted in contract in favour of one party to extend the liability of the other party beyond what it would normally be.  If a party is concerned that the other party may escape liability on ground that no obligation was created due to initial objective impossibility of performance could insist – other party should warrant performance.  If warranty = agreed to – obligation is created, even though performance = impossible.  Party in breach of warranty – liable to pay damages, eg; top of pg 210.  Warranty can be expressed/ tacit.  If performance = guaranteed – party cannot rely on impossibility.

8.1.4) THE CONSENQUENCES OF IMPOSSIBILITY     

Gen rule: objective impossibility doesn’t give rise to obligations. Therefore no claim for performance/ contractual damages based on breach. Fulfilment of non-existent obligation – restitution must occur. Duty to return – enforced with claim based on unjustified enrichment of recipient. Contractual obligations = reciprocal – the impossibility of performance of one obligation automatically means there can’t be an obligation to render the counter-performance either.  Eg: destroyed painting – no obligation arises to deliver painting and no reciprocal obligation to pay purchase price, even if payment is still physically possible.  Performance of contractual obligations = partially impossible at time of agreement – contract regarded as invalid as a whole.

8.2) CERTAINTY 8.2.1) THE GENERAL RULE: UNCERTAINTY ABOUT WHAT HAS TO BE PERFORMED PREVENTS THE CREATION OF OBLIGATIONS  Gen rule: if performance is uncertain = no obligations.  Contents of obligations must be certain/ ascertainable (capable of being rendered certain through mechanisms set out in contract).  Certainty = difficult to determine 3

8.2.2) THE APPLICATION OF THE CERTAINTY REQUIREMENT: SOME PRACTICAL EXAMPLES – Read on pg 211. 8.2.2.2) Vague language and gaps  Contractual term could be void for uncertainty due to vague language in which it’s couched.  In Levenstein v Levenstein: parties undertook that in exchange for transfer of property and business, recipient would maintain transferor ‘to best of his ability during the remainder of her life’ – crt regarded ability to pay as determinable fact and term not regarded as void for uncertainty, therefore phrase = not vague.

8.2.2.4) Contracts containing a mechanism whereby certainty can be obtained    

SA law adopted principle – something is certain if it can be rendered certain. Mechanism for obtaining certainty must function independently of intention of parties. Doesn’t mean one of parties cannot be involved in further determination of performances. Determination potentially has to be subject to element of objective control.

 F.f examples = instructive – certainty is obtained with/through: 1. Mechanism found in contract – inclusion of escalation clause: o Provides for automatic increase in amount of performance over time, eg; prov that rental will increase @ 10% p.a over 5 years. 2. Reference to objective standard or mechanism: o Position where parties agree that performance should be at ‘reasonable price’. 3. Determination by third party: o Third party can determine what has to be performed as long as third party = identifiable and exercises discretion objectively and reasonably. o Contract determines what degree of latitude should be accorded to third party in making determination. o Determination = manifestly unjust – crt can adjust but no duty on aggrieved party to accept adjusted performance. 4. Determination by one of parties: o Contracts provide discretion/ power to one of parties to determine performances. o Discretion to determine own performance = invalid. o H/ever in NBS Boland v One Berg River Drive CC: party can enjoy discretion to determine what other party has to perform – discretion must be exercised reasonably.

8.2.3) THE CONSEQUENCES OF NOT MEETING THE CERTAINTY REQUIREMENT  Obligation – doesn’t meet certainty requirement = invalid.  If obligation may be separated from other obligations created by contract – other obligations could remain in force.  Contract = only partially invalid.  = rather unsatisfactory if offending clause was supposed to protect only one of parties and party wishes to uphold contract.  Transfer made in purported fulfilment of an obligation – is invalid for uncertainty can be reclaimed with remedies based on unjustified enrichment. 4

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