General Principles of Commercial Law 9th Edition PDF

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General Principles of Commercial Law NINTH EDITION HEINRICH SCHULZE BLC LLB (Pret) LLD (Unisa) Advocate Professor of Law in the Department of Mercantile Law, University of South Africa

ROSHANA KELBRICK BA (Pret) LLB (Stell) LLM LLD (Unisa) Attorney Professor of Law in the Department of Mercantile Law, University of South Africa

TUKISHI MANAMELA BProc LLB (Unin) LLM (Unisa) Advocate Associate Professor in the Department of Mercantile Law, University of South Africa

PHILIP STOOP BCom LLB LLM (Pret) LLD (Unisa) Associate Professor in the Department of Mercantile Law, University of South Africa

EDDIE HURTER BLC LLB (Pret) LLD (Unisa) Senior Lecturer in the Department of Mercantile Law, University of South Africa

ERNEST MANAMELA BProc LLB (Unin) LLM (Unisa) Associate Professor in the Department of Mercantile Law, University of South Africa

Chrizell STOOP LLB LLM (Pret) LLD (Unisa) Associate Professor in the Department of Mercantile Law, University of South Africa

BOAZ MASUKU LLB LLM (Unisa) Senior Lecturer in the Department of Mercantile Law, University of South Africa

Contents Preface to the Ninth Edition Table of Cases Table of Statutes Section A: Introduction 1 The South African Legal System 2 Introduction to the Science of Law Section B: General Principles of the Law of Contract 3 Law of Contract: Introduction 4 Consensus 5 Capacity to Perform Juristic Acts 6 The Agreement must be Possible 7 Formalities 8 Terms of the Contract 9 Interpretation of the Contract 10 Breach of Contract 11 Remedies for Breach of Contract 12 Transfer and Termination of Personal Rights Section C: Specific Contracts 13 The Contract of Sale 14 The Contract of Lease 15 The Contract of Insurance 16 Credit Agreements Section D: Specific Aspects of Commercial Law 17 Labour Law 18 Intellectual Property Law and Franchising 19 Alternative Dispute Resolution 20 The Law of Agency 21 Forms of Business Enterprise 22 The Law of Competition 23 Security 24 Banking Law: Selected Topics 25 Payment: Negotiable Instruments 26 Other Methods of Payment 27 The Law of Trusts 28 The Law of Insolvency 29 The Law of Administration of Estates 30 Consumer Protection Index

Section A: Introduction

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Chapter 1 The South African Legal System

1.1 1.2 1.3 1.4 1.5 1.6

A short history of the law Sources of the law The courts in the Republic The doctrine of stare decisis Interpretation of statutes Court judgments

1.1 A short history of the law Law is a social science; it has to provide for the changing needs of a developing community and consequently is inseparably bound up with the community it has to serve. For a thorough understanding of the law it is essential to have a knowledge not only of the community in which it functions, but also of its history and of the factors which led to its origin and development. This is why every study of the law includes a study of the history of the law. Another reason is that a knowledge of legal history helps to evaluate probable trends of future development. South African law, unlike, for example, most European continental legal systems, is not codified (that is, recorded in one comprehensive piece of legislation). The law applying in the Republic is drawn from various authoritative sources. The principal sources are statutes and decided cases, but sometimes a judge or other jurist has to go further back in history to solve a legal problem, and turns to Roman law or the works of the writers on Roman-Dutch law to shed light on the problems. Roman law and RomanDutch law are also recognised sources of the law. South African law today is the product of different sources. First, it has its origins in Roman law. Secondly, during the fifteenth and sixteenth centuries, Roman law became fused with Dutch customary law — hence the term Roman-Dutch law — and it was this law that Van Riebeeck brought to South Africa. Thirdly, as can naturally be expected in view of the country’s history, English law exerted a considerable influence on RomanDutch law. Each one of these historical sources will be dealt with very briefly.

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1.1.1 Roman law Roman law traditionally spans the period from 753 BC to AD 568. At the beginning of this period, Rome was a small, relatively primitive state with most of its population living on farms around the city. Its economy was based mainly on agriculture, with no trade to speak of. The nucleus of the community was the family with the oldest male ascendant at its head. Not only was he the sole owner of all the family property, whether acquired by himself or his dependants, but he was also the holder of all power, including the power of life and death, over the members of his family and his slaves. The law was correspondingly primitive. Rome, however, developed rapidly until it stood at the head of a vast empire which extended over virtually the entire Western Europe and large portions of Africa and Asia. Obviously, the law had to adapt to and make provision for these changed circumstances, and, in consequence, a highly sophisticated legal system, capable of dealing with the exigencies of increasing wealth, expanding trade and an influx of foreigners, evolved. From AD 291 attempts were made to codify Roman law and these attempts culminated in a codification known as the Corpus Iuris Civilis, which appeared during the reign of Emperor Justinian in the sixth century. Today, this work is still the primary authoritative source on which South African courts draw when reverting to Roman law to solve a legal problem. 1.1.2 Roman-Dutch law The Roman Empire declined and fell in AD 476 but this did not mean that Roman law disappeared. During the Middle Ages, traces of Roman law remained for two reasons. In the first place, every person, wherever such person might be, was judged according to the law of his or her own tribe or country and, therefore, former Roman citizens were treated according to Roman law. In the second place, the church exerted great influence during this period and canon law was based mainly on Roman law; this, of course, contributed to the preservation of Roman law. During the fifteenth and sixteenth centuries, particularly, Roman law was received in the Netherlands and became mixed with the existing Dutch customary law. The works of Roman-Dutch jurists, the statutes of Holland (as far as they are still in force) and the collections of old Dutch opinions and court decisions, form the source of present-day South African law. 1.1.3 English law In 1652 Jan van Riebeeck brought Roman-Dutch law to the Cape, but the administration of justice during the seventeenth and eighteenth centuries left much to be desired. After 1814, the year in which the Cape was formally ceded to Great Britain, the existing Roman-Dutch law remained in force but various factors contributed to a reception of English law. The direct and indirect influence of English law was encouraged. Appeal to the Privy Council in London was instituted, the jury system was introduced, and the Orphan Chamber was replaced by the Master of the Supreme Court. English law was often directly drawn on for new legislation: for example, a code of criminal procedure was introduced in 1826; the entire English law of evidence was introduced in 1830, and the English system

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of the administration of estates in 1843. Simultaneously, a gradual infiltration of the English legal terminology and manner of thinking took place, resulting in a strong and adaptable system of law. The year 1910 was a milestone in the development of South African law. That year saw the establishment of a Union Parliament, a uniform system of statute law for the whole country, and the establishment of the Appellate Division to ensure more or less uniform decisions for the Union. The Privy Council was of comparatively little importance after 1910 and was abolished as the highest court of appeal for South Africa by Act 16 of 1950.

1.2 Sources of the law South African law is derived from a number of sources. Some sources are authoritative while others merely have persuasive authority. Courts are bound by authoritative sources, whereas those of persuasive authority may lead a court to apply or interpret a legal rule in a particular way. The sources of South African law, in the order in which they are usually consulted, are the following: 1.2.1 Statute law or legislation 1.2.1.1 General Legislation is the making of law by a competent authority. Today, legislation is the most important source of the law. The law is to be found in statutes enacted by Parliament and provincial legislatures, and by proclamations, regulations and by-laws enacted by subsidiary legislative bodies such as the President, ministers and municipalities. There are even certain Dutch statutes which still apply in South Africa, namely, pre1652 legislation. Dutch legislation of the period 1652-1806 applies only if it has been ratified and accepted by South African law. Dutch legislation passed after 1806 does not apply here. There are only a few Dutch statutes which are still in effect in South Africa; the legislature has repealed many of these statutes and replaced them with new legislation. An example of such a statute which still applies is a law of 1658 concerning the lease of immovable property (this law is referred to again in chapter 14). English statutes never applied here, unless the legislation had been especially promulgated by the British Parliament to apply to the Union of South Africa or the colonies. Some of the laws of the four pre-1910 provinces still apply today in so far as they have not been repealed or amended by Parliament or by the provincial legislatures. 1.2.1.2 The Constitution The most important source of law in South Africa is the Constitution of the Republic of South Africa, 1996. Previously, we had a supreme Parliament. This meant that any law passed by Parliament was valid, irrespective of its contents. We now have a system of constitutional supremacy under which the Constitution is the supreme law of the Republic. This means that if Parliament were to pass a law that offended against the provisions of the Constitution, it would be invalid. Not only new legislation but also existing law that is inconsistent with the Constitution can be declared invalid by a superior court. The preamble to the Constitution states that it was adopted so as to — (a) heal the divisions of the past and establish a society based on democratic values, social justice and fundamental human rights

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(b) (c) (d)

lay the foundations for a democratic and open society in which government is based on the will of the people and every citizen is equally protected by law improve the quality of life of all citizens and free the potential of each person, and build a united and democratic South Africa able to take its rightful place as a sovereign state in the family of nations.

The primary method of giving effect to these ideals is through the Bill of Rights, contained in Chapter 2 of the Constitution. The Bill of Rights is the cornerstone of democracy in South Africa and confirms the democratic values of human dignity, equality and freedom. The Bill of Rights applies to all law and binds all three branches of government (the legislature, the executive and the judiciary) and all organs of state. The state is required to respect, protect, promote and fulfil these rights. The Bill of Rights deals with first-generation rights (most of which are negative rights that take power away from the state by imposing a duty not to act in a certain way, for example not to torture or not to discriminate), and with second-generation rights (positive socio-economic rights that impose an obligation on the state to provide all members of society with certain basic necessities). First-generation rights include the rights to equality, human dignity, life, and various freedoms of the person — of religion, of expression, of movement and trade. Second-generation rights include the right to housing, health-care, food and water, social security and education. None of these rights is absolute in the sense that it always applies. Rights can be limited in special circumstances, which are that — • The limitation must take place by law of general application. • It must be reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom. • It must take into account all relevant factors, including the nature of the right, the importance of the purpose of the limitation, the nature and extent of the limitation, the relation between the limitation and its purpose, and whether there are less restrictive ways of achieving the purpose. All these circumstances must be met for a limitation to be lawful. The Constitution also regulates government by setting out the structure of the state and its organs, and by providing for their functions and powers. It deals with national, provincial and local government, the courts and the administration of justice, public administration, security services, traditional leaders and financial matters of state. 1.2.2 Customary law Certain rules of conduct are observed because it has become customary in a particular group of people to respect such usages. Customary law does not consist of written rules, but develops from the habits of the community and is carried down from generation to generation. In modern communities where the rate of development is very rapid, custom has less opportunity to develop into law. Once the need for a particular legal rule arises, the legislature simply steps in and lays down such a rule. Yet, even today it may still happen that custom develops into law. In Van Breda v Jacobs 1921 ad 330, a local custom amongst fishermen — that once they have set their lines on a beach where no boats are permanently stationed, for the purpose of catching a shoal of fish seen moving along the coast, no other fishermen are entitled to set lines within any reasonable distance in front of the lines already set — was held to be duly established by the evidence as a valid custom. It appears from this judgment that the following requirements must be met before a customary rule will be recognised as a legal rule:

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(a) (b) (c)

It It It of

must be reasonable. must have existed for a long time. must be generally recognised and observed by the community. (d) The contents the customary rule must be certain and clear.

The court’s decision that a particular custom is valid merely recognises the custom as being law and does not give the custom any greater force than it had before. Nevertheless, the validity of the custom is thereby established. Customary law, also called ‘trade usages’, also plays an important role in the business and commercial world. It is often alleged that a trade usage exists within a certain trade or business and that the parties to a contract are bound by it. The same requirements as those for proving a rule of customary law apply. For example, a trader who alleges that a customer must pay an installation fee for a television or stove bought from the trader must prove all of the requirements in (a)-(d) above. Where one of the requirements has not been proved, the court will not enforce the usage. 1.2.3 Judgments of the courts The judgments of the Dutch courts before 1652, judgments of the Cape Council of Justice before 1827, judgments of the courts of the four provinces before 1910, and judgments of the South African courts after 1910 form an important authoritative source of law which is known as case law. The South African courts are traditionally divided into superior and lower courts. The superior courts are the Constitutional Court, the Supreme Court of Appeal and the High Court. The lower courts are those courts which are lower in status than the High Court and which are not required to keep a record of their proceedings. Examples of these are the magistrates’ courts, the small claims courts and the different courts of black chiefs and headmen. The jurisdiction of the lower courts is limited: that is, they can adjudicate only on specific matters and only in respect of specific persons. The most important judgments of the Constitutional Court, the Supreme Court of Appeal and the High Court are reported mainly in The South African Law Reports and the All South African Law Reports. Some judgments of the courts in Namibia and Zimbabwe are also reported. 1.2.4 The old authorities As pointed out above, Roman and Roman-Dutch law played an important role in the development of present-day South African law. The works of the old jurists of Holland are still authoritative in the courts today. Ancient Roman law as set out in the Corpus Iuris Civilis still applies as a direct source of South African law. The body of law provided by the old authorities is also known as the common law. 1.2.5 Foreign law If nothing can be found in one or more of the above sources, a judge will turn to the law of other modern countries for guidance. Foreign law is not regarded as an authoritative source for South African law — it has persuasive authority only. In this connection, the decisions of the English courts immediately come to mind, but it must be emphasised that English law is no authority if South African law makes full provision on the point. The courts will reject South African decisions which in the past have wrongly adopted English law. The decisions of the American courts have sometimes been accepted in South Africa, but, of course, they are not binding. Moreover, where necessary, the courts

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may have regard to the law of countries on the European continent. The law in many of these countries is based on Roman law and, accordingly, South African and European law correspond to a considerable extent. Foreign law as a source of law has also been recognised in the Constitution. The Constitution specifically provides that in interpreting the Bill of Rights a court of law must consider international law and may consider foreign law. 1.2.6 Textbooks and law journals There are numerous textbooks and law journals on South African law. The journals contain articles, case discussions and analyses on a variety of topics. These works are written by lawyers, for example, legal academics, advocates, attorneys and judges. These works have no inherent authority of their own, but if they are methodical and convincing expositions of the law, they may well have a persuasive influence on the courts. Page 7

1.3 The courts in the Republic It has already been pointed out that the courts in the Republic 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. The most important lower court is the magistrate’s court. 1.3.1 The Constitutional Court The Constitution Seventeenth Amendment Act of 2012 amended the Constitution to provide that the Constitutional Court is the highest court in all matters. Before this

amendment, section 176(3)(b) of the Constitution stipulated that the Constitutional Court could only decide on constitutional matters and issues associated with constitutional matters. After the amendment, the Constitutional Court is no longer a specialist court dealing only with constitutional matters. However, the Constitutional Court still has exclusive jurisdiction as a court of first and final instance on the matters contained in section 167(4) of the Constitution. The Constitutional Court consists of the Chief Justice of South Africa, the Deputy Chief Justice and nine other judges. The seat of the Constitutional Court is in Johannesburg, but if it appears to the Chief Justice that it is more convenient or practical or in the interest of justice to hold its sitting at a place other than Johannesburg, it may hold such sitting elsewhere. It is important to remember that any matter before the Constitutional Court must be heard by at least eight judges. 1.3.2 The Supreme Court of Appeal The Supreme Court of Appeal (which, before 1997, was known as th...