Unformatted text preview: Commercial Law
Fifth Edition Commercial Law
Fifth Edition CJ NAGEL
BA LLB LLD (Pret)
Professor University of Pretoria J BARNARD SM PAPADOPOULOS LLB (Pret) LLM (Unisa) LLD (Pret)
Senior Lecturer University of Pretoria BLC LLB LLM (Pret)
Senior Lecturer University of Pretoria A BORAINE
BIur LLB (Pret) LLM (Wits) LLD (Pret)
Former Professor and Head of Department
of Procedural Law
Dean of the Faculty of Law
University of Pretoria PA DELPORT
BA LLB LLD (Pret) HDip (Tax) (Wits)
Professor University of Pretoria KM KERN
LLB LLM (RAU)
Senior Lecturer University of Johannesburg
Partner Bowman Gilfillan Inc DJ LÖTZ
BIur LLB (Pret) LLM (Wits) LLD (Pret)
Professor University of Pretoria JM OTTO
BA LLB LLD (Pret)
Professor and Former Dean of the Faculty of Law
University of Johannesburg B PROZESKY-KUSCHKE
BLC LLB (Pret) LLD (Unisa)
Associate Professor University of Pretoria M ROESTOFF
BLC LLB LLD (Pret)
Professor University of Pretoria BPS VAN ECK
BLC LLB LLD (Pret)
Professor and Head of the Department
of Mercantile Law
University of Pretoria SR VAN JAARSVELD
BA LLB LLD (Pret)
Professor and Former Head of Department
of Mercantile Law
University of Pretoria Members of the LexisNexis Group worldwide
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ISBN 978 0 409 12394 4
eBook ISBN 978 0 409 12395 1
First edition 1995
Second edition 2000
Reprinted 2001, 2002, 2003, 2004, 2005
Third edition 2006 Reprinted 2007
Fourth edition 2011
Fifth edition 2015 Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without the
publisher’s written permission. Any unauthorised reproduction of this work will constitute a copyright infringement and
render the doer liable under both civil and criminal law.
Whilst every effort has been made to ensure that the information published in this work is accurate, the editors, authors,
writers, contributors, publishers and printers take no responsibility for any loss or damage suffered by any person as a
result of the reliance upon the information contained therein.
Editor: Marjorie Guy
Technical Editor: Salome Govender Printed in South Africa by Interpak Books Pietermaritzburg Preface
Since the publication of the fourth edition of Commercial Law in 2011, changes in several areas
of the law have necessitated the publication of this fifth edition. New legislation and case law
were updated as far as possible up to the end of August 2015.
Commercial Law aims at dealing comprehensively with the most important principles of both the
law of contract in general and of those nominate contracts most often encountered in the
commercial sphere, such as credit agreements and contracts of sale, lease, carriage, suretyship,
pledge, mortgage, employment, arbitration, letting and hiring of work , and insurance. This work
contains a useful introductory discussion of the origin and creation of legal rules and the legal
system, followed by a discussion of the sources of legal obligations, such as contract, delict and
unjust enrichment, which is necessary for a better understanding of the discussion of the law of
contract by which it is followed. Because agents often play a role in the conclusion of contracts,
this book contains a concise discussion of the law of agency. The law in respect of instruments
of payment and of credit, such as the bill of exchange, cheque and promissory note and electronic payment mechanisms, is also addressed. The most important principles of the law of
insolvency, including the winding up of companies and close corporations, are discussed. In
addition, the essential principles of individual and collective labour law are incorporated in the
book . There are also sections on alternative dispute resolution and the Consumer Protection
Act.
From the beginning, the composition of this book has been such that it is, both in content and
depth of presentation, eminently suitable for non-legal students at universities, universities of
technology and business schools. Combined with a case book, it should also offer a complete
package to undergraduate law students. In this respect a start has been made with Specific
Contracts in Court (LexisNexis 2010). Even legal practitioners requiring a concise overview of
these areas of the law will find this book to be a useful point of departure.
It is also of the utmost importance to note that Commercial Law is the companion of Delport
New Entrepreneurial Law (2014). The latter deals comprehensively with the basic principles of
the law governing the main forms of the business enterprise.
THE AUTHORS
December 2015 v Contents
Page
Preface ...................................................................................................................................................................................... v Part One – General Introduction
1
2 The South African Legal System and its History .................................................................................
Creation of Legal Rules and the Administration of Justice ............................................................ 3
11 Part Two – General Principles of the Law of Contract
3
4
5
6
7
8
9 Introduction to the Law of Contract .........................................................................................................
Consensus ..................................................................................................................................................................
Contractual Capacity ...........................................................................................................................................
Legality, Possibility of Performance and Certainty ..............................................................................
Formalities ..................................................................................................................................................................
Parties to the Contract, Conditions and Related Concepts, Particular Terms and
Interpretation of Contracts ..............................................................................................................................
Breach of Contract and Termination of Contractual Relationship ........................................... 21
47
75
91
103
109
125 Part Three – Agency
10
11
12 Introduction to the Law of Agency .............................................................................................................
The Principal .............................................................................................................................................................
The Agent................................................................................................................................................................... 161
171
179 Part Four – Purchase and Sale
13
14
15 General Introduction to the Law of Purchase and Sale ..................................................................
Duties of the Seller ...............................................................................................................................................
Duties of the Buyer............................................................................................................................................... 195
213
237 Part Five – Letting and Hiring
16
17
18 Formation of the Contract of Lease ...........................................................................................................
Duties of the Lessor and the Lessee ..........................................................................................................
Miscellaneous Aspects of the Law of Lease ........................................................................................... 245
261
279 Part Six – Credit Agreements
19
20
21
22
23 General Introduction and Historical Background ................................................................................
Application of Act and Conclusion of Credit Agreements ...........................................................
Consumer Credit Institutions and Regulative Matters .....................................................................
Rights and Duties of Parties .............................................................................................................................
Financial Matters, Dispute Settlement and Debt Enforcement ................................................. 289
295
305
313
325 Part Seven – Insurance and Carriage
24
25
26 Introduction to Insurance Law and Insurance Contracts ...............................................................
Specific Aspects of Insurance Contracts and Indemnity and
Non-indemnity Insurance ..................................................................................................................................
Carriage........................................................................................................................................................................ 337
363
379
vii Contents
Page Part Eight – Security
27
28
29 General Introduction and Suretyship .........................................................................................................
Mortgage, Pledge and Cession in Security ..............................................................................................
Hypothecs and Liens............................................................................................................................................ 399
409
423 Part Nine – The Bill of Exchange, Cheque, Promissory Note
and Electronic Payment Methods
30
31
32 General Principles of the Law of Negotiable Instruments .............................................................
Cheques.......................................................................................................................................................................
Electronic Payment Methods .......................................................................................................................... 431
455
469 Part Ten – Insolvency
33
34
35 Introduction and Sequestration .....................................................................................................................
Effects of Sequestration ......................................................................................................................................
Administration of Insolvent Estates, Composition, Rehabilitation, Offences and
Winding-up of Companies and Close Corporations........................................................................ 499
525
567 Part Eleven – Labour Law
36
37
38 General Introduction to Labour Law .........................................................................................................
Individual Labour Law..........................................................................................................................................
Collective Labour Law ....................................................................................................................................... 627
639
671 Part Twelve – Construction, Engineering and Services Contracts
39 Construction, Engineering and Services Contracts ............................................................................ 691 Part Thirteen – Alternative Dispute Resolution
40 Alternative Dispute Resolution ...................................................................................................................... 721 Part Fourteen – The Consumer Protection Act
41 The Consumer Protection Act ...................................................................................................................... 737 Table of Cases ..................................................................................................................................................................... 797 Index .......................................................................................................................................................................................... 821 viii Part One
General Introduction
by
JM Otto 1
The South African Legal System
and its History
History of the South African Law 1.01 – 1.14
General – Roman law – Roman-Dutch law – South African law. The South African Legal System 1.15 – 1.33
General – Divisions of the objective law (the law) – Subjective rights. 3 1.01 – 1.05 The South African Legal System and its History History of the South African Law
General
1.01 A country’s legal system is not finalised and put into place overnight – the South African
legal system is no exception in this regard. Before a legal system can be studied, it is advisable to
take note of its origin, nature and divisions.
1.02 The South African law is based on Roman-Dutch law (also known as the common law),
but contemporary South African law is not limited thereto as regards its sources. Through court
decisions, a vast number of legislative enactments over the years and the introduction of certain
legislation from English law, the South African law was further enriched and developed. Moreover, the South African Constitution of 1996, many Acts passed on account of the Constitution,
and modern commercial legislation such as the National Credit Act 34 of 2005, the Consumer
Protection Act 68 of 2008 and the Companies Act 71 of 2008 introduced important new
principles into our legal system.
1.03 The name Roman-Dutch law indicates that our common law finds its roots in two systems
– Roman law and the old Dutch law. The two systems will therefore be discussed briefly. Roman law
1.04 The development of Roman law is closely related to the constitutional history of Rome
and the Roman Empire. In particular, four periods can be distinguished:
(a) The Period of the Kings (The Monarchy) (± 753 BC to 510 BC ). During this period, Rome
was relatively undeveloped and the law consisted of customs (customary law).
(b) The Republican Period (510 BC to 27 BC). The law was for the first time systematised
during this period and was put into writing in the so-called Twelve Tables.
(c) The Period of the Emperors (The Principate) (27 BC to 284 AD). These three centuries represent the climax in the Roman history. The empire itself expanded over large parts of Europe
and Northern Africa. Roman law developed into a sophisticated system, mainly due to the
work and writings of the Roman jurists.
(d) The Dominate (284 AD and later). This period is known as the Absolute Monarchy or
Dominate. The empire was divided into the Western and Eastern Roman Empire in 395
AD. After the high-water mark of the Period of the Emperors, the Roman community, and
its legal system, showed signs of stagnation and decline.
1.05 The Germanic tribes conquered the Western Roman empire in 476 AD and the application of Roman law started to decline. The empire existed in the East, however, until 1453. The
Emperor Justinian ruled in this part (in Constantinople, today Istanbul) between 527 AD and 565
AD. He held Roman law in high esteem and instructed a commission to codify the legal system.
A codification (or code) is the primary source of law of a particular legal system in which the
current law is systematically and comprehensively put into writing. 4 History of the South African Law 1.06 – 1.12
1.06 The codification was later called the Corpus luris Civilis. It consisted of four parts, namely:
(a) the Digest (Digesta) – a selection of the opinions and writings of Roman jurists;
(b) the Institutes (Institutiones) – a textbook for students;
(c) the Code (Codex) – a collection of current legislation; and
(d) the Novels (Novellae) – a collection of legislation enacted after the works mentioned
above.
1.07 As the Roman empire and community degenerated, the legal system likewise stagnated.
However, Roman law did not disappear altogether. Justinian’s codification in particular ensured
that Roman law was preserved throughout the Middle Ages. This legal system was still widely
applied and also played a role in the church.
1.08 In the eleventh century Roman law was rediscovered and studied at a law school in Bologna. Various law schools were founded thereafter and notes and commentaries on Roman law
were written by, amongst others, students who studied at those schools. In this way, Roman law
was spread throughout Europe and formed the basis of most European legal systems. RomanRoman-Dutch law
1.09 By the end of the Middle Ages there was an increasing need in Europe for a developed
legal system, as the tribal and provincial systems could not solve all legal problems satisfactorily.
This was also the position in Holland, a province of the Netherlands. The various tribal and
provincial legal systems of North-western Europe of the twelfth century were suitable for a
simple agricultural community but could not answer to the demands of a rapidly developing
commercial world. The search for a sophisticated legal system was satisfied by applying the
flexible principles of Roman law adjacent to, and eventually in addition to, the indigenous law.
This led to the adoption or reception of Roman law. This also happened in Holland, particularly
during the sixteenth century.
1.10 Various jurists produced writings on Roman and Dutch law. Their opinions on the law at
the time are still accepted today as authoritative by South African courts. The best known
writers in Holland were Hugo de Groot, Johannes Voet, Simon van Leeuwen, Van Bynkershoek ,
Van der Keessel and Van der Linden. They are known as the old writers and their works as the
old authorities. Probably the most important two old authorities which were later used most
frequently in South Africa are De Groot’s Inleydinge tot de Hollandsche Rechtsgleertheyt and Voet’s
Commentarius ad Pandectas. South African law
1.11 Jan van Riebeeck brought the Roman Dutch law to South Africa in 1652. Despite the
English occupation of 1806, this system remained in force in South Africa and was extended to
the interior of the country.
1.12 Although England never officially imported the English legal system to this country, South
African law was nevertheless strongly influenced by English law. There were various factors
responsible for this, amongst them the following:
(a) judges and magistrates versed in English law were imported from England;
(b) local jurists studied in England; 5 1.12 – 1.19 The South African Legal System and its History
(c) English court decisions were often referred to;
(d) many South African Acts (legislation) were based on corresponding English Acts; and
(e) the final court of appeal was the Privy Council in England.
1.13 The South African mercantile law (commercial law) was strongly influenced by English law,
particularly regarding legislation on insolvency law, negotiable instruments and company law. On
the other hand, the common law (or Roman-Dutch) basis of the law of contract was left virtually
intact. This is also true of the specific contracts like sale, lease, pledge, mortgage and suretyship.
1.14 The South African system is therefore a mixed or hybrid syst...
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