CLA1503 E 60158972 - Commercial study guide PDF

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© 2015 University of South AfricaAll rights reservedPrinted and published by the University of South Africa Muckleneuk, PretoriaCLA1503/1/4/60158972CLA1503/1 (v)INTRODUCTION1 INTRODUCTIONWelcome to Commercial Law 1C (CLA1503).Commercial Law 1C (CLA1503) is a semester module. We suggest that you appr...

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© 2015 University of South Africa All rights reserved Printed and published by the University of South Africa Muckleneuk, Pretoria CLA1503/1/4/2016 60158972

CONTENTS

INTRODUCTION SECTION A:

SECTION B:

SECTION C:

SECTION D:

v INTRODUCTION Study unit 1:

The South African Legal System

Study unit 2:

Introduction to the Science of Law

GENERAL PRINCIPLES OF THE LAW OF CONTRACT Study unit 3:

Requirements for the formation of a valid contract and transfer of personal rights

Study unit 4:

Terms of the Contract

Study unit 5:

Breach of Contract

Study unit 6:

Remedies for Breach of Contract

SPECIFIC CONTRACTS Study unit 7:

The Contract of Sale

Study unit 8: Study unit 9:

The Contract of Lease The Contract of Insurance

2 11 21 23 78 87 100 111 112 122 135

SPECIFIC ASPECTS OF COMMERCIAL LAW

143

Study unit 10: The Law of Agency

144 151 164

Study unit 11: Forms of Business Enterprise Study unit 12: Security Study unit 13: The Consumer Protection Act and the Financial Intelligence Centre Act

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INTRODUCTION

INTRODUCTION 1

Welcome to Commercial Law 1C (CLA1503). Commercial Law 1C (CLA1503) is a semester module. We suggest that you approach your study of this module by first getting an overview of it. An overview will enable you to identify what you will need to have mastered by the end of the semester to complete this module successfully, and also how the different prescribed sections and study units (chapters in the prescribed textbook) form part of the syllabus for this module.

OVERVIEW In section A, you are introduced to the South African legal system in study unit 1 (chapter 1 of the textbook) and to the science of law in study unit 2 (chapter 2 of the textbook). In section B, you are introduced to the general principles of the law of contract. Section B is composed of study units 3, 4, 5 and 6. Study unit 3 (chapters 3, 4, 5, 6 and 7 of the textbook) gives you a brief introduction to the law of contract and introduces you to the five basic requirements for the conclusion of a valid contract, namely consensus, acting capacity, possibility of performance (both legally and physically), and formalities. With regard to formalities, it is important to note that although formalities are included here, only a limited number of contracts require formalities to render them valid. Study unit 3 also gives you a brief introduction to cession, which is a way in which personal rights can be transferred from one legal subject to another (chapter 12 paragraph 12.2 of the textbook). It is also important to note what the consequences are if the basic requirements for the conclusion of a valid contract have not been met. Such a contract could nevertheless be valid, valid but unenforceable, void or voidable. In study unit 4 (chapter 8 of the textbook), you are introduced to the different terms that contracts may contain, their meanings, uses and consequences. In study unit 5 (chapter 10 of the textbook), you are introduced to the various forms of breach of contract that may occur, and in study unit 6 (chapter 11 of the textbook), to the remedies available for each type of breach of contract. We would also like to draw your attention to the paragraphs in each study unit. Please note that in study unit 3 (chapter 4 of the textbook), for example, there are at least three aspects regarding the meaning of consensus that should be distinguished (the intention to be contractually bound, a common intention, and making the intention known). Similarly, in study unit 3 (chapter 5 of the textbook), there are six factors that can influence a legal subject’s capacity to act. Study these separately as they appear under each paragraph, but also as part of the bigger picture. You will also be studying various topics relating to commercial law. In section c you will study a number of specific contracts, namely the contract of sale in study unit 7 (chapter 13 of the textbook), the contract of lease in study unit 8 (chapter 14 of the textbook) and the contract of insurance in study unit 9 (chapter 15 of the textbook). CLA1503/1

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INTRODUCTION

These are all variations on the general principles of the law of contract, which you studied in study units 1–6. In section D, other important aspects for the business world are introduced. At first glance the topics may seem unrelated, but most relate to the law of contract to a lesser or greater extent. This section includes study unit 10 (chapter 20 of the textbook), which discusses the law of agency; study unit 11 (chapter 21 of the textbook) discusses the different forms of business enterprises (excluding companies) and explains how contracts are concluded on behalf of such enterprises; study unit 12 (chapter 23 of the textbook) discusses forms of security and explains how various forms of security can be obtained; and study unit 13 (chapters 24 and 30 of the textbook) discusses the Consumer Protection Act and also introduces to you the Financial Intelligence Act. Lastly, and most importantly, in judgments delivered by, inter alia, the Constitutional Court there is a trend towards the Africanisation of South African law and the upholding of the principles of ubuntu, as well as the promotion of good faith and fairness in contracts. The African concept of ubuntu is subtle and can be described as a set of values expressed through compassion, human dignity, group solidarity, conformity, respect, justice, good faith, fairness to others and other similar virtues. Ubuntu finds expression in the Zulu saying “umuntu ngumuntu ngabantu”, which means that a person is a person through other people. This concept was given explicit application in our jurisprudence for the first time in S v Makwanyane 1995 (6) BCLR 665 (CC). Madala J noted that ubuntu advocates social justice and fairness. In AfriForum and Another v Malema and Others (20968/2010) [2011] ZAEQC 2; 2011 (6) SA 240 (EqC); [2011] 4 All SA 293 (EqC); 2011 (12) BCLR 1289 (EqC) (12 September 2011) Lamont J remarked as follows: “Ubuntu is recognised as being an important source of law within the context of strained or broken relationships amongst individuals or communities and as an aid for providing remedies, which contribute towards more mutually acceptable remedies for the parties in such cases. Ubuntu is a concept which [inter alia] dictates a shift from (legal) confrontation to mediation and conciliation.” It is important, for example, to realise that some of the concepts used in the law of contract are similar to traditional concepts of ubuntu typically found in traditional African societies. Throughout this study guide we will indicate how ubuntu fits in with commercial law under the heading “Africanisation and Commercial Law”.

LEARNING OUTCOMES The outcome of this module is threefold:

• • (vi)

The study units that deal with the South African legal system and science of law provide you with a general overview of the law and enable you to relate the different sections of the law to one another. The study units that deal with the general principles of the law of contract should enable you to identify, analyse and solve basic legal problems relating to the law of contract. You should be able to give advice on how contracts arise, the effect

INTRODUCTION

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of a particular clause in a contract, the implications of breach of contract and how contracts are transferred. The study units that deal with various types of contracts and those important aspects of commercial law are primarily to enable you to identify different types of contracts and to distinguish between them. You should also be able to identify the rights and duties of the parties to the different contracts and apply the principles to practical situations.

PRESCRIBED STUDY MATERIAL Schulze, H et al, General Principles of Commercial Law, 8th edition (2015), Juta, Cape Town (hereinafter referred to as “the textbook”).

THE STRUCTURE OF EACH STUDY UNIT Each study unit is based on a chapter of the textbook. At the beginning of each study unit, the outcomes for that particular study unit are set out. Once you have worked through a study unit thoroughly and methodically, you should be able to demonstrate your achievement of the stated outcomes. Each study unit is divided into different subheadings that correspond with the headings used in the textbook. Under each heading you will fi nd comments on various aspects of the study material that relates to the subject discussed under that particular heading. The length of the comments varies in relation to the degree of difficulty of the subject concerned. These comments do not replace or summarise the textbook; usually they simply provide an explanation or additional notes to help you understand the material in the textbook. As such, they form part of the material for assessment purposes. The study units contain a number of activities and feedback. The activities are based on the study material. The activities are very important and will give you an understanding of the study material. Please ensure that you do the activities on your own before you look at the feedback that has been provided. In order to complete each activity, you are expected to understand the work to which it relates. The answers provided are not necessarily complete and may simply refer you to relevant paragraphs in the textbook. Therefore, you must use the feedback to determine whether you have understood and completed the activities correctly. At the end of each study unit, you are given self-assessment activities which you need to do by yourself in order to test your understanding of the whole study unit.

HOW TO USE THIS STUDY GUIDE The aim of this study guide is to guide and steer you through the textbook. You need to make your own summaries of the textbook and the study guide. You should therefore use this study guide in conjunction with the textbook for this study guide to make sense to you. We suggest that you approach your studies in the following way: Begin each study unit by reading attentively through the relevant chapter of the textbook. Then take the headings, one by one, and study the contents in the textbook, together with any comments that you might fi nd under the same heading in the study guide. Please note that, to a large extent, the comments in this study guide supplement CLA1503/1

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INTRODUCTION

the contents of the textbook. For this reason, this study guide and the textbook should be studied together. After you have mastered the contents under a specifi c heading, you should try to do the activities underneath, if any are included. Try to do these without looking at the answers. The activities are an important component of the study material and we want to encourage you to do them. These activities also provide practical exercises to help you to understand the relevant concepts and achieve the outcomes mentioned. Once you have done the activities, you should compare your answers with the answers in the study guide. Hopefully the activities will indicate any problems you might experience with the study material. By doing the activities thoroughly, you will be able to monitor your progress through the study material. Some of the activities are similar to the questions you will encounter in the assessment. Therefore, if you are able to do the activities, you will have achieved some of the outcomes set at the beginning of the study unit. Remember, however, that in the examination you will not have access to your textbook and study guide. By that stage you should be in a position to answer the questions without the assistance of these learning tools.

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SECTION A 1

INTRODUCTION

STUDY UNIT 1 1

The South African Legal System 1

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LEARNING OUTCOMES After you have worked through this study unit, you should be able to:

• • • • • •

distinguish between the origins and the sources of South African law identify the various courts in South Africa, as well as their functions, jurisdiction and officers explain the operation and effect of the doctrine of stare decisis apply the various theoretical rules and methods used to interpret statutes describe the contents and typical aspects of a court judgment differentiate between the ratio decidendi and an obiter dictum

Prescribed study material: chapter 1 of the textbook

OVERVIEW In this study unit you are introduced to the history and the sources of South African law, the courts in South Africa and their officers, the doctrine of stare decisis, the interpretation of statutes, and court judgments. The aim of this study unit is to provide you with a broad outline of the South African legal environment in which the state, its subjects and the business world function. Please note that three legal systems contributed to the historical development and origins of the South African law and that six sources, some authoritative and others merely persuasive, can be consulted to fi nd the South African law on a particular point. You are introduced to six types of courts, their jurisdiction and officers. Three aspects are important regarding the doctrine of stare decisis. How statutes are interpreted is discussed in four subdivisions, and we explain four aspects relating to court judgments.

INTRODUCTION In section A you learn about the South African legal system. Since this section is intended as background information, the legal system is described very generally. We use diagrams to explain the relevant matters to give you an overview of how these various aspects relate to one another. The following diagram forms the basis of the fi rst two study units. You will note that we add more details about a specific aspect as we deal with that aspect. 2

STUDY UNIT 1: THE

SOUTH AFRICAN LEGAL SYSTEM

ACTIVITY 1.1 Now that you have studied the South African legal system, please proceed to answer the multiple-choice question below. You are expected to motivate your answer and to explain why the other three options are incorrect before you can look at the feedback. Which ONE of the following legal systems is the basis of the South African legal system? 1. 2. 3. 4.

Dutch customary law Roman law English law Roman-Dutch law

FEEDBACK 2

4 is CORRECT. The works of the Roman-Dutch jurists, the statutes of Holland and the collections of old Dutch opinions and court decisions form the basis of the South African legal system. Enrichment actions were accepted and adopted in Roman-Dutch law, on which South African law is based. 1 is INCORRECT. Roman law was received in the Netherlands and became mixed with the existing Dutch customary law, to form Roman-Dutch law. Roman-Dutch law is the basis of the South African law, and not pure Dutch law. 2 is INCORRECT. Roman law was received in the Netherlands and became mixed with the existing Dutch customary law, to form Roman-Dutch law. Roman-Dutch law is the basis of the South African law, and not pure Roman law. 3 is INCORRECT. Although certain aspects of English law were incorporated into the existing Roman-Dutch law, the basis of the South-African legal system remained the Roman-Dutch law. If you are still uncertain about the correct option, please study the relevant section in the textbook.

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A BRIEF HISTORY OF THE LAW (Textbook par 1.1) A short historical overview is important in order to establish where South African law comes from. The history of the South African legal system goes far back to the

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SECTION A: INTRODUCTION

Romans. Current South African law is a unique mixture of legal systems, firmly rooted in Roman law, Roman-Dutch law and English law. The following diagram indicates the origin of South African law:

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SOURCES OF THE LAW (Textbook par 1.2) You must study par 1.2 of the textbook to gain a better understanding of the sources of South African law. It is important to distinguish between the origins of our law (where our law comes from) and the sources of our law (where the law can be found). The sources of South African law are shown in the following diagram:

When you study judgments of the courts (par 1.2.3 of the textbook) as a source of law, please also refer to par 1.4 (the doctrine of stare decisis) and par 1.6 (court judgments) of the textbook.

ACTIVITY 1.2 Distinguish between authoritative and persuasive sources.

FEEDBACK 3

Authoritative sources are binding to the courts of law whereas persuasive sources may influence the courts to interpret or apply a legal rule in a particular way. Refer to par 1.2 of the textbook.

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STUDY UNIT 1: THE

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SOUTH AFRICAN LEGAL SYSTEM

THE COURTS IN THE REPUBLIC (Textbook par 1.3) The following diagram shows the different courts in South Africa:

Jurisdiction means the capacity to hear a case and to pass a valid judgment. The jurisdiction of a division of the High Court is unlimited in the sense that such a court may hear any type of criminal or civil case. It is, however, limited in the sense that a division of the High Court exercises its jurisdiction within a specified area. A division of the High Court may hear constitutional matters, except those matters which, in terms of the Constitution, may be heard by the Constitutional Court only. For example, a division of the High Court may decide whether any fundamental right entrenched in the Constitution has been violated. Please note under par 1.3.3 of the textbook that the High Court is no longer the only court with jurisdiction to hear divorce matters. Regional courts have jurisdiction over the geographical area of several magisterial districts. In terms of the Jurisdiction of Regional Courts Amendment Act 31 of 2008, certain of these regional courts now have jurisdiction to hear divorce matters. Please also note under par 1.3.6 of the textbook that magistrates exercise their jurisdiction within certain magisterial districts.

ACTIVITY 1.3 Identify and briefl y describe the most important superior courts.

FEEDBACK 4

As you are aware by now, the courts in the Republic of South Africa are divided into superior and lower courts. The most important superior courts are the Constitutional Court, the Supreme Court of Appeal and the High Court. Refer to par 1.3 of the textbook for a brief description of the superior courts.

ACTIVITY 1.4 Identify and discuss the roles of the offi cers of the superior courts.

FEEDBACK 5

Offi cers of the superior courts include

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SECTION A: INTRODUCTION

• • • •

registrars sheriffs in some divisions of the High Court, a Master’s offi ce that is presided over by a Master legal practitioners (advocates and attorneys)

You should study par 1.3.5 of the textbook in order to familiarise yourself with the roles of the above-mentioned offi cers of the superior courts.

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THE DOCTRINE OF STARE DECISIS (Textbook par 1.4) As is clear from par 1.4 of the textbook, the hierarchy of the courts determines how the stare decisis doctrine is applied. The following diagram represents the application of this doctrine.

STARE DECISIS IN ACTION: Meaning of symbols: ↑

bound by decisions of courts higher in hierarchy

↔

bound by own decisions

Constitutional Court:

bound by own decisions ↔

Supreme Court of Appeal: bound b...