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THE LAW OF CONTRACTS- FAQ's             Back to home page

 

The Law of Contracts concerns agreements which create legally enforceable rights and duties. It includes the rules relating to various well known types of contracts (‘special’ contracts) such as sale, lease, mandate, suretyship, partnership, employment, insurance, carriage and storage, service, credit agreement and many more. A contract is a legally binding agreement, written, oral or flowing from conduct, to give, do, or refrain from doing something. We have a separate list of Q and A’s on contracts of lease, called Landlord and Tenant and you can read it here

It is not advisable to draw up contracts yourself or rely on ‘off the shelf’ forms readily available these days. Each contract is different and unique, and requires the services of an Attorney. This will ensure that many future pitfalls and problems can be avoided and that your rights and interests are protected at all times. If the person or Company that you have contracted with is in breach of contract, you will urgently require the services of an Attorney. Avoid problems before they arise by consulting with an Attorney when signing any important contracts.

If you have ever been approached to stand surety for another person’s debt, you should obtain legal advice and fully understand the risks and consequences of this legally binding agreement.

  1. To be able to form a contract, parties must have legal capacity to bind themselves by agreement. What does this mean?
  2. Offer and Acceptance – what does this mean?
  3. Does calling for tenders constitute an offer?
  4. Delivery and ownership of goods sold – can you please tell me more?
  5. The passing of risk in goods sold – can you tell me more please?
  6. ‘Ticket’ Terms – what does this mean?
  7. Sale of goods – what are the requirements?
  8. What are the obligations of the seller once a contract of sale has been concluded?
  9. What is a latent defect?
  10. What happens if the defective goods cause loss?
  11. What are other legal problems that could be encountered?
  12. What are some of the formalities required in respect of different categories of contract?
  13. When is a contract voidable?
  14. What are some of the miscellaneous provisions that appear in contracts?
  15. What are some of the remedies in law when an agreement has been breached?
  16. Can I settle my contractual dispute by Arbitration without going to court?
  17. How does the new Consumer Protection Act affect car salesmen?
  18. Are voetstoots clauses still valid and what other warranties will apply?
  19. What should be avoided when selling used vehicles and can consumers be asked to sign a contract waiving the protection offered under the new act?
  20. What can and cannot be included in sales contracts?
  21. How will a salesman’s conduct be judged?
  22. How does the new Consumer Protection Act affect the IT industry?
  23. How does the Act affect fixed term software licences and rental contracts?
  24. Do consumers have the right to inspect and return software?
  25. What about a one sided licence agreements and contracts?
  26. What about unlawful provisions in a software contracts?
  27. What constitutes defective software?
  28. Must software have a ‘warranty of quality?’
  29. Who has legal liability for harm caused by defective or unsafe goods?
  30. What is a suretyship?
  31. What are the requirements and when does it become enforceable?
  32. What is a co-principal debtor?
  33. Is it possible to limit your liability?

 

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1. To be able to form a contract, parties must have legal capacity to bind themselves by agreement- what does this mean?

 

Legal capacity, or so calledcontractualcapacity, is a prerequisite to any contract; the ability to have rights, perform juristic acts with legal consequences and to sue and be sued, i.e. to have locus standi in iudicio or legal standing before court.

Minors:Section 17 of The Children Act 38 of 2005 describes major status as at age 18 or above.If under the age of seven a parent or legal guardian with locus standi must act on the minor’s behalf. A child seven years and older has limited contractual capacity and must be assisted by a parent or legal guardian.Such assistance includes consent given to conclude a contract; be it prior, at time of formation thereof or ratification thereafter. It will suffice if the guardian had knowledge about the type of contract entered into and raised no objection – Van Dyk v South African Railways and Harbours 1956 (4)SA 410 (W).

When a minor, assisted or represented by his guardian, is a party to a contract, such a minor will be personally bound and liable to perform under the contract, and not the guardian. If patently prejudicial to the minor, the court may set the contract aside and grant restitutio in integrum. The minor will recover what he paid or delivered under the contract but must restore what he received. In Wood v Davies 1934 CPD 250, the court set aside a prejudicial contract of a house bought on behalf of a minor.

When a minor of seven years and more contracts without assistance, in cases where assistance is required, no liability is incurred and any money or property delivered pursuant to the agreement can be recovered – Tanne v Foggit 1938 TPD.

Since the commencement of The Matrimonial Property Act ,88 of 1984 minor males and females attain majority on marriage irrespective of age – this is also extended to customary marriages. Section 6 of the Recognition of Customary Marriages Act 120 of 1998 confirms the spouses’ equality in regard to all rights, when married in terms of this Act.

The emancipation of a minor by the court causes him or her to be deemed a major for all purposes. Complete tacit emancipation (consent given by a guardian to the conclusion of contracts) was abolished by the Age of Majority Act. It is contended that relative tacit emancipation is merely a general consent given to minors to the conclusion of contracts of a certain class. Minors, by statute, also have the power to conclude certain contracts without any assistance.

Spouses: In marriages prior to the commencement of The Matrimonial Property Act of 1984 a woman married in community of property was in a position similar to that of a minor. Advanced, express or implied consent from her husband was required to bind the joint estate when contracting. This Act has now abolished the limitations placed by the husband’s marital power on his wife’s legal capacity to litigate and to contract. Spouses can now both bind the joint estate contractually, but some juristic acts will still require the consent of the other spouse. If married out of community of property both spouses have full contractual capacity. Spouses are protected from the creditors of one another, estates are separately administered and they are not liable for each others’ debts.

We have an entire section devoted to Marriage and Divorce – See questions here

Insolvents: the general rule is that insolvency does not affect the validity of the contracts he makes. The Insolvency Act 24 of 1936 prohibits alienation of property belonging to the insolvent estate by the insolvent person. Consent is also required from the trustee before negotiating a contract which may adversely affect his insolvent estate. Alienation of property acquired after insolvency will be valid provided that the person to whom alienation took place can prove that he was unaware of such sequestration.

Companies: have limited contractual capacity - the clause in the constitution of a company that sets out its main objective, e.g. buying and selling cars, determines its contractual capacity. The company has the capacity to contract in the furtherance of its main object and any object ancillary thereof. Statutory protection is provided to parties contracting with companies lacking capacity, provided that such other party acted in good faith.

Close Corporations: have unlimited contractual capacity. Such entity has the same legal capacity and powers as a natural person – sect 2(4) of the Close Corporations Act , 69 of 1984.

Partnerships: have no contractual capacity at all.

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2. Offer and Acceptance – what does this mean?

 

In general terms, an agreement is an offer made by one party which is accepted by the other party.

An offer is a proposal made, that:

  • proposes certain terms of performance,
  • with an intention of it being accepted.

Either of the parties can make the offer, i.e. the buyer can offer to buy or the seller can offer to sell .The offer can also either be the result of a long series of negotiations, i.e. about price, quality, delivery method, etc - or be done with basically no negotiations at all, i.e. when one walks into a store to buy a loaf of bread.

The offer must:

  • be a firm offer and not just a mere invitation to do business, and
  • set out all that is needed for the parties to agree upon to validate a legal contract.

As a general rule the offer can also be withdrawn at any given time before acceptance.

Where the timeframe that an offer will remain available for acceptance is not specified, the courts will deem it as being open for a reasonable period of time.

What a reasonable time constitutes will depend on the particular circumstances of each case.

An acceptance is the accent to the terms of performance of the offer that was made.

Acceptance of the offer must:

  • be indicated by offeree (person offered to) to the offeror (person that made the offer),
  • be definite and unequivocal,
  • correspond exactly with the terms of the offer,
  • be communicated by offeree to the offeror, and generally on the terms as laid down,
  • not have lapsed or been revoked prior to acceptance, and
  • only be accepted by the person as so intended by the offeror – no one else may accept it.

The offer and the acceptance thereof can be made either in writing, verbally or be implied.

Without the acceptance of the offer made, no contract will come into existence.

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3. Does calling for tenders constitute an offer?

 

When a party calls for tenders, other persons are invited to submit offers to him regarding the substance of such a tender.

The party that calls for tenders is not making an offer by doing so and, in the absence of any rule of law to the contrary, he is not obliged to even consider a specific tender.

On the other hand, if the advert calling for tenders or the tender conditions itself, includes an undertaking to accept i.e. the lowest made tender, then he will be obliged to accept it.

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4. Delivery and ownership of goods sold – can you please tell me more?

 

Ownership, as a general rule, only passes when the buyer pays the full purchase price and takes delivery of the goods with the intention of becoming the owner thereof. The contract of sale in itself thus has no effect on the ownership of the goods.

Ownership in regard to credit purchases of movable property i.e. goods bought on account, will pass on delivery of the goods by the seller to the buyer.

Ownership in the case of a sale for cash also requires an intentionthat ownership should pass together with the delivery of the goods.

Ownership of immovable property only passes at registration thereof in the name of the purchaser.

Ownership of expensive goods bought by means of a series of monthly instalments, frequently remains with the seller until payment is done in full. The buyer has possession rights and may use the goods provided the monthly instalments are met – otherwise it can be repossessed by the seller by exercising his right of ownership. Such hire-purchase agreements are mostly regulated in terms of the Credit Agreements Act of 1980

  • The question regarding ownership can become essential, i.e. in cases where: a party becomes insolvent, or
  • Ownership of the goods was transferred to a third party by the seller, but prior to delivery of the goods to the first buyer.

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5. The passing of risk in goods sold – can you tell me more please?

 

The general rule is that risk passes as soon as the contract of sale is concluded.

Risk relates to the responsibility for the wellbeing of the goods in question i.e. if a boat, moored on a lake, is bought but left to be fetched the following day, the buyer could still be bound to pay the agreed sales price if the boat drifts of to sea due to an overnight storm.

The question of whether the risk passed to the buyer will depend on whether the seller was to Blame for the loss of the boat due to negligence on his part and on the terms of the agreement regarding the passing of risk.

Parties can agree that risk passes only at some time after the conclusion of the contract i.e. at time the boat is fetched, etc.

The benefits attached to the goods generally pass together with the risk i.e. if the boat increased in value overnight the buyer will reap the profit from this and not the seller who is still in possession of the boat – except if they agreed otherwise.

It is a common practice to alter the normal rules applicable to risk when contracting.

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6. Ticket’ Terms – what does this mean?

 

An offer is conditional - the terms thereof must be accepted bythe other contractual party for it to have any legal implications.

Large enterprises commonly have such conditions of sale displayed:

  • On prominent notices in front or inside the building where business is conducted, and or
  • Printed on the back of a receipt, ticket, or contract with reference to it on the front of such a document.

‘Ticket’ terms thus refer to the small print on the back of such documents, setting out the conditions of the sale i.e. limiting the legal liability of the seller or the common law rights of the buyer.

Such conditions must be readily available to the customers before the latter agrees to buy the product or service rendered by the trader.

Terms printed on the back of tickets or receipts that are only handed to the customer after payment, renders such conditions worthless because it was not reasonably possible for the customer to read it before the conclusion of the agreement.

Traders may also try to limit their liability by adding various conditions to a sale, i.e. that the product must be used in a specific manner etc. The purchaser does not have to agree to such clauses in the contract and can cross some or all of these out – but then the seller is obviously not obliged to sell such product to the consumer on account that the conditions of trade were not accepted.

Caveat subscriptor (let the signer beware), expresses the general rule that the signer is bound by his signature whether he reads the document or not. If illiterate you need to ask for the terms to be explained before you agree to it by means of placing your mark or signature on the document.

The saying “big print gives and small print takes” is applicable – contracting parties must read the small print carefully before agreeing to a contract’s terms.

You will be bound by your signature made, accept if you signed due to:

  • Making a reasonable mistake in believing the document to be something else than a contact, i.e. you believed it to be a delivery receipt instead, or
  • You being misled by the trader as to the contents of the document.

If a trader gives sufficient notice of the conditional terms of his trade the customer is bound as if he read and understood it, except if now different than advised before.

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7. Sale of goods – what are the requirements?

 

All agreements that were entered into with an intention of being bound to the terms thereof are prima facie (at first glance) considered to be enforceable.

A contract of sale, in most basic terms, comes into existence when two people agree that one of them will sell the specific goods to the other in return for a sum of money.

A sale of goods becomes a binding contract of sale as soon as both parties agree on:

  • The intent to buy or to sell respectively,
  • The subject matter of the sale, and
  • The price at which it is to be sold.

No contract of sale is concluded until one party makes an offer which is accepted by the other.

Both the offer and the acceptance thereof are required to be performed with fullcontractual capacity or with the assistance of someone possessing full contractual capacity in cases where a contractual party’s contractual capacity is limited, i.e. minors or woman married in community of property prior to the date that the Matrimonial Property act 88 of 1984 came into operation.

The party that disputes the legality of a contract due to the absence of one or more requirements needed to validate such has the onus (duty) to prove the allegation.

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8. What are the obligations of the seller once a contract of sale has been concluded?

 

A number of obligations are imposed on the seller to be performed after conclusion of the sale. He has no discretion in this regard and is bound to perform these obligations except if the buyer agrees otherwise.

The seller must:

  • Look after the goods of sale until delivery, even if risk has passed to the buyer,
  • Deliver the goods of sale to the purchaser i.e. make it available to him,
  • Guarantee that the purchaser will enjoy the full and undisturbed possession of the goods of sale, and,
  • Guarantee that there are no inherent (latent) defects in such articles sold.

Latent defects give rise to most disputes between buyers and sellers and the seller’s guarantee in this regard has vital importance to any contract of sale.

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9. What is a latent defect?

 

An article purchased from a trader could possibly be defective.

Appliances are generally bought pre - packed. Any defects in such goods of sale are predominantly discovered only after delivery has taken place.

We distinguish between two categories of defects:

  • Latent defects, and
  • Patent defects

Patent defects are obvious i.e. scratches or dents. Such defects are easily assessed upon reasonable examination. Once discovered it could render the item in question to be less valuable but still usable. The purchaser can claim a partial refund from the seller as compensation for such a defect.

If goods have a patent defect and are not bought pre packed, the purchaser’s request for a reduced purchase price must form part of the negotiating process prior to the sale.

A Purchaser is required to closely inspect such an item before the sale is concluded.

A purchaser will not be able to complain about it later because law assumes that he or she has the good sense not to proceed with a sale in such circumstances.

A latent defect, on the other hand is a fault that is not obvious, nor insignificant.

Such a fundamental or inherent defect requires more than careful examination before it is discoverable. It renders the article less useful for the purpose for which it was bought or for which an item of that nature is normally purchased, i.e. an internal electrical fault.

A latent defect must have existed at time of sale and the purchaser had to be unaware of the defect at such a time.

The purchaser can claim a partial refund from the seller as compensation for such a defect should the item still be useful for the purpose it was bought for or a full refund should it be found to be unfit for such a purpose. The trader may also not insist that he or she accepts a replacement or a credit note instead, when a cash refund was claimed.

Guarantees could limit the rights of a purchaser to repair only and as such prevent the purchaser from utilising the common law remedies he or she would have had access to in the absence of such a guarantee.

Complaints of latent defects are prevalent in most disputes between buyers and sellers.

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10. What happens if the defective goods cause loss?

 

A latent defect can cause an item to fail its purpose.

A defect can also cause loss i.e. a bad batch of fertiliser that poisons the soil and cause grazing animals to die.

The trader will be accountable for loss suffered due to a defect, if the trader:

  • Fraudulently or negligently failed to disclose the defect when a honest and reasonable trader would,
  • Was also the manufacturer of the goods, or
  • Publically professed to have expert skill and knowledge of such goods sold, or
  • Guaranteed the goods to be free of defects.

The trader will then be liable to compensate the purchaser for the defect itself and the actual loss suffered due to such a defect.

The trader can protect himself against liability for defects with a clear exemption clause in the terms and conditions to sale, i.e. by selling the goods voetstoots (as is). The trader will not be able to rely on an exemption clause when such non disclosure amounts to fraud.

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11. What are other legal problems that could be encountered?

 

The trader is also obliged to compensate the customer if the trader:

  • Made a false statement, material to the quality or value of the goods before or when the sale was concluded, that induced the purchaser to buy or pay a higher price for the goods than what he otherwise would have done, or
  • Delivers goods that do not meet the requirements of the purchaser, i.e. do not match a sample given or are not what was ordered.

The false statement can either be made intentionally or negligently. Non disclosure of the true facts can also cause liability.

The reasonable man test (what a reasonable man, in his position, would have done in the same circumstances), also applies here to ascertain liability. The purchaser will be able to claim either a full or partial refund and may also claim for compensation for consequential loss, when applicable.

As in the case of defective goods, the purchaser can claim a cash refund, be it partial or in full, in lieu of a replacement item or credit note.

If a purchaser rejects all reasonable compensation offers made, the seller can retain the purchase price awaiting any legal action taken by the purchaser.

Legal action can be instituted at a Small Claims court, Magistrates court or High court with jurisdiction in the particular matter.

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12. What are some of the formalities required in respect of different categories of contract?

 

A contract will be lawful if made either viva voce (orally), in writing or tacitly (adopted from the conduct of the parties).

Formalities, as prescribed by legislation for certain categories of contracts, are deemed exceptions to the general rule that no formalities are required to validate contracts.

Contract for the Alienation of land – the contract must:

  • Be contained in a deed of alienation, .i.e. written and signed by the parties or authorised agents - and if used or intended to be used for residential purposes, it must in certain instances also: Contain various prescribed detail and information, incorporate certain mandatory terms as part of the contract, whether agreed upon or not, and make reference to various rights accruing to the purchaser and some other consequences arising from the act.

Failure to comply with these additional requirements makes the contract voidable.

A Contract for the acquisition of interest in a share block scheme or for a sale or lease of time sharing interest must be done in writing and be signed by the parties or by their authorised agents.

A Lease of land for a period of ten years or more or a Lease of mineral rights must be registered against the title deed of the land.

Prospecting Contracts and Ante Nuptial Contracts must be registeredin the deeds registry and attested by a Notary Public.

Credit and Lay-by agreements must also be done in writing and signed by the parties of the contract. It is a criminal offence not to comply with these requirements.

A Contract of Suretyship must be embodied in a written document and signed by, or on behalf of, the surety; else the contract will be invalid.

Donations must be in writing and signed by the donor or his or her authorised agent in the presence of two witnesses; else it will have no effect.

A Contract of Apprenticeship in certain trades must be in writing and signed by or on behalf of the employer and the apprentice, and by his or her guardian if a minor, and be registered by the Registrar of Manpower. Failure to comply renders the contract invalid.

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13. When is a contract voidable?

 

When a contract is voidable it means that one of the parties may opt for the rescission (setting aside) of such a contract because his acceptance of the terms thereof was the result of improper conduct by the other party before or at the time of contract formation.

The following conduct is regarded as improper and will justify rescission of the contract:

  • Misrepresentation
  • Duress, and
  • Undue influence.

The contract will remain valid and must be performed on by both parties until time of rescission.

Note that the aggrieved party has a choice – he may also decide to take the improper conduct in his stride and not to claim for rescission.

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14. What are some of the miscellaneous provisions that appear in contracts?

 

Provisions may vary dependant on the nature of the transaction, the needs and intentions of the parties.

Provision Types commonly found in various contracts, are:

  • Suspensive Conditions that suspend the operation of an obligation to be performed until a future uncertain event, i.e. I will buy a ladder when dad lends me money but you agree that I use it in the meantime (sale is suspended until loan) and or Resolutive Conditions which is immediately binding but suspends the continuous operation of such obligation or contract until a future occurrence or non- occurrence, i.e. you will sell the ladder to me unless you get a better offer – until such better offer we must still perform according to the agreement, but when you get a better offer our contract becomes void ab initio (from the start)
  • Warranties (or Guarantees ) ; statement intended to bind yourself that it is correct, .i.e. that the dog I sell is a puppy of 6 months old,
  • Exemption or Exclusion Clauses,
  • No Variation Clauses,
  • Cancelation Clauses,
  • Penalty Clauses,
  • Domiciluim Citandi Clauses,
  • Clauses providing for Giving of Notice,
  • Clauses Consenting to Jurisdiction of Magistrate Courts,
  • Clauses providing for Attorney and Client Cost.

Large enterprises make use of standard form contracts with prefixed provisions that form the basis on which that specific entity is prepared to do business with the public

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15. What are some of the remedies in law when an agreement has been breached?

 

A debtor may breach the terms of a contract by his or her:

  • Failure to perform on or before the date fixed for such performance, or
  • Incomplete or defective performance contrary to the terms of the contract, or
  • Repudiation of obligations by means of word or action; showing his or her intent to refuse performance as required
  • Prevention of performance, i.e. by destruction of own vehicle to make delivery as agreed, impossible.

The aggrieved party has several remedies in law available in cases of contractual breach:

  • An order compelling the defaulter to render specific performance,
  • An award for contractual damages (or for discomfort, pain and loss of amenities of life), putting him or her in same economic position as would be if defaulter performed properly, or
  • Cancelationof the contract.

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16. Can I settle my contractual dispute by Arbitration without going to court?

 

Any civil dispute, except those arising from marriage or relating to the legal status of the parties may be referred for arbitration.

Arbitration is a quicker and cheaper way to settle contractual disputes than going to court.

It can be pre agreed, as a term of contract, to settle all future disputes by submitting themselves to arbitration. Parties can also agree on arbitration at time of a dispute and sometimes arbitration is prescribed by statute.

There are no prescribed formalities to such an agreement and it can be made in writing or viva voce (orally) If made orally the common law applies – this is rarely done.

Once agreed it can only be revoked by means of consent of all the parties or be set aside by the court on good cause shown. The inherent jurisdiction of the courts can not be circumvented by means of an agreement that purports to exclude the jurisdiction of the courts entirely. The court retains the authority to set aside the award of an arbitrator.

The parties must appoint an independent arbitrator to conduct proceedings according to justice principals.

Parties can also approach the court to appoint an arbitrator if they can not reach consensus about who to appoint themselves.

The chosen arbitrator or arbitrators best have expert knowledge in the field in which the dispute arose and can be anyone 18 years or older.

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17. How does the new Consumer Protection Act affect car salesmen?

 

What do consumers have a right to expect from a used vehicle?

When buying a used vehicle, customers have a right to expect that:

  • The vehicle is reasonably suitable for the purposes for which it is generally intended; or for a specific purpose that the customer has specifically informed the dealer about before buying the vehicle.
  • The vehicle is of good quality, in good working order and free of any defects
  • The customer will only lose this right if the dealer has expressly informed the customer that the vehicle is being offered in a specific condition, and the customer has expressly agreed to accept the vehicle in that condition.

Does the consumer have a right (or duty) to inspect the vehicle?

  • A buyer will usually be expected to conduct a visual inspection or examination of the vehicle to the extent and in a manner that a reasonably prudent person would inspect such a vehicle.
  • to how far the reasonable man would go or what he would do in conducting the inspection or examination would depend on the circumstances, bearing in mind the nature and common or agreed use of the thing sold.
  • The Consumer Protection Act states that, before a vehicle is delivered to a customer, the seller must, on request, allow the customer a reasonable opportunity to examine the vehicle for the purpose of ascertaining whether the customer is satisfied that the vehicle is of a type and quality reasonably contemplated in the agreement, and meets the description given by the dealer.
  • However, under the Consumer Protection Act, it is now irrelevant whether a product failure or defect was latent or patent, or whether it could have been detected by a consumer before taking delivery of the goods.

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18. Are ‘voetstoots’ clauses still valid and what other warranties will apply?

 

  • It is not clear from the Act whether selling a used vehicle “as is”, would constitute sufficient disclosure of the specific condition of the vehicle. Dealers may be required to do more to alert themselves to the actual condition of a vehicle before they sell it.
  • The Act also does not prohibit voetstoots clauses in sale agreements: provided that such clauses are brought to the notice of the customer in the manner required by the Act. Such clauses will also be interpreted strictly and if they are open to interpretation, will be interpreted in a way that is beneficial to the customer.

What other warranties will apply?

The vehicle sold must also be useable and durable for a reasonable period of time, having regard to the use to which the vehicle would normally be put and to all the surrounding circumstances.

The vehicle must also be compliant with any public regulations, e.g. it must be roadworthy.

In determining whether any vehicle satisfies the above requirements, all of the circumstances of the supply of the vehicle must be considered, including but not limited to:

  • the manner in which the vehicle was marketed, the use of any trade description, any instructions for, or warnings with respect to the use of the vehicle;
  • the range of things that might reasonably be anticipated to be done with or in relation to the vehicle; and
  • the time when the vehicle was produced and supplied.

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19. What should be avoided when selling used vehicles and can consumers be asked to sign a contract waiving the protection offered under the Act?

 

The dealer and their staff must take careful note of their words and conduct when marketing their vehicles to ensure that they don’t directly or indirectly express or imply a false, misleading or deceptive representation concerning a material fact about the vehicle to a customer, including:

  • That the vehicle has certain performance characteristics, accessories, uses, benefits, qualities, or approval that it does not have; or
  • That the vehicle is of a particular standard, quality, grade, style or model; or
  • That it has been used for a certain period of time, or for a number of kilometres, when this is not the true facts.

They also cannot use exaggeration, innuendo or ambiguity as to a material fact, or fail to disclose a material fact if that failure amounts to a deception. If it is apparent that the customer is labouring under a misapprehension about the vehicle, the dealer must correct the situation.

Dealers cannot market or sell their vehicles at a price that is unfair, unreasonable or unjust; or on terms that are unfair, unreasonable or unjust; or in a manner that is unfair, unreasonable or unjust.

Can customers be asked to sign a contract waiving the protection offered under the Act?

 

  • Customers cannot be required to waive any rights or assume any obligations on terms that are unfair, unreasonable or unjust. Similarly, dealers cannot waive liability on terms that are unfair, unreasonable or unjust.

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20. What can and cannot be included in sales contracts?

 

Agreements and/or terms in an agreement will be regarded as unfair, unreasonable or unjust if:

  • they are excessively one-sided in favour of the dealer;
  • they are so adverse to the customer as to be inequitable;
  • the customer relied upon a false, misleading or deceptive representation made by or on behalf of the dealer;
  • the customer relied on a statement of opinion provided by or on behalf of the dealer and acted to their detriment; or
  • the fact, nature and effect of an extraordinary term, condition or notice was not drawn to the attention of the customer in a manner that satisfied the applicable requirements of the Act. (Extraordinary terms include limitations or waivers of liability, indemnities or acknowledgements by the customer that are not true).

Do customers need to be given time to read the fine print?

  • A customer must be given an adequate opportunity in the circumstances to receive and comprehend any agreement which contains extraordinary terms.
  • Customers cannot be required to enter into a supplementary agreement, or sign a document that would be prohibited under the Act.

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21. How will a salesman's conduct be judged?

 

When a decision needs to be made if a dealer has acted unreasonably, or illegally, the following will be taken into account:

  • the fair value of the vehicle in question, or the amount for which, and circumstances under which, the customer could have acquired an identical vehicle elsewhere;
  • the parties to the sale, their relationship to each other and their relative capacity, education, experience, sophistication and bargaining position;
  • the surrounding circumstances of the sale or circumstances which were reasonably foreseeable at the time;
  • the conduct of the dealer and the customer, respectively;
  • whether there was any negotiation between the dealer and the customer, and if so, the extent of that negotiation;
  • whether, as a result of conduct engaged in by the dealer, the customer was required to do anything that was not reasonably necessary for the legitimate interests of the dealer;
  • the extent to which any documents relating to the transaction or agreement satisfied the plain language requirements of the Act; and
  • whether the customer knew or ought reasonably to have known of the existence and extent of any particular provision of the agreement that is alleged to have been unfair, unreasonable or unjust, having regard to any trade custom and any previous dealings between the parties.

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22. How does the new Consumer Protection Act affect the IT industry?

 

  • The stated purpose of the Act is to establish a legal framework for a fair, accessible, efficient, sustainable and responsible consumer market for the benefit of consumers generally. Although special attention is paid to minors, senior citizens, the poor and illiterate in the Act, all consumers will be entitled to enjoy protection under the Act, even sophisticated ones.
  • The protection afforded by the Act will be extended to small businesses as well as to natural persons. The threshold for what will be regarded as a small business is still to be determined by the Minister of Trade and Industry.
  • The Act applies to every transaction occurring within South Africa, the promotion of any goods or services in South Africa and the goods and services themselves regardless of whether the supplier is not based in or a citizen of South Africa.
  • The Act will also apply irrespective of whether the supplier operates on a for-profit basis or otherwise. This means that open source software or free-to-use software developers may be found liable under the Act.
  • An industry-wide exemption from one or more of the provisions of the Act could be applied for by the relevant regulatory authority in the software and ICT services industries. Unfortunately, any exemption granted will not release developers from their liability under the product liability section of the Act (section 61).

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23. How does the Act affect fixed term software licences and rental contracts?

 

  • Fixed terms contracts create certainty between 2 or more contracting parties that they will remain bound by a contract for a particular period of time. The Act now regulates fixed term contracts to such an extent that this certainty has been seriously diluted.
  • Under the Act, consumers can no longer be tied into fixed term contracts and have the right to cancel same at any time, by giving the supplier 20 business days’ written notice for any reason whatsoever. The consumer will remain liable for any goods or services supplied up to the cancellation date and will be liable to pay a reasonable cancellation fee. The consumer must be credited for any amount paid in advance under the contract which pertains to the unexpired period of the contract.
  • The supplier, on the other hand, may only cancel the agreement during its term after 20 business days after giving written notice to the consumer of a material failure by the consumer to comply with the agreement, unless the consumer has rectified the failure within that time. In other words, the supplier may only cancel the contract if the consumer has committed a material breach of the contract.
  • The supplier must also give the consumer not more than 80 and not less than 40 business days notice before the expiry date of the fixed term of the impending expiry date. This notice must advise the consumer of any material changes that would apply if the agreement is renewed and that the agreement will automatically continue on a month-to-month basis unless the consumer directs that the contract must end on the expiry date or agrees to a renewal of the contract for a further fixed term.
  • The Minister may, by notice in the Gazette, prescribethe maximum duration for various categories of fixed-term agreements and no agreement may exceed that period.

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24. Do consumers have the right to inspect and return software?

 

  • The consumer must be allowed a reasonable opportunity to examine the software to ensure that it is of a type and quality reasonably contemplated in the agreement, and that it meets the requirements and standards reasonably expected or, in the case of a special-order agreement, reasonably conform to the material specifications of the special order.
  • The consumer may return software within 10 days for a full refund if he or she did not have an opportunity to examine before delivery and the consumer has rejected delivery of the software because it doesn’t meet the necessary requirements and standards or doesn’t satisfy the particular purpose communicated to the supplier.
  • Shrink wrap agreements may no longer be valid under SA law as breaking the packaging of the software to inspect same would ordinarily constitute acceptance of delivery.
  • The consumer will not be able to return software that has already been partially or entirely disassembled, physically altered, permanently installed, affixed, attached, joined or added to, blended or combined with, or embedded within, other goods or property.

Instructions and supporting documentation

  • The Act states that such documentation must be produced in plain language which is understandable to an ordinary software user with average literacy skills and minimal experience as a consumer of the relevant software or services

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25. What about one sided licence agreements and contracts?

 

Software suppliers and ICT service providers may not offer software or ICT services on terms that are unfair, unreasonable or unjust. This would include provisions in a contract that:

  • require a consumer to waive any of their rights under the Act or assume any obligations;
  • allow a supplier or service provider to waive their liability under the Act;
  • are excessively one-sided in favour of the supplier;
  • are inequitable;
  • are based on the consumer’s reliance on a false, misleading or deceptive representation, or statement of opinion made by the supplier to the detriment of the consumer;

A limitation of liability, assumption of risk, indemnity or acknowledgement of any fact by a consumer must be drafted in plain language and drawn to the attention of a consumer, including an explanation as to their nature and effect, in a conspicuous manner and form that is likely to attract the attention of an ordinarily alert consumer, having regard to the circumstances before the agreement is entered into or any consideration has been given for the goods or services.

Notification of risks associated with the goods or services

  • If an activity associated with the goods or services is subject to any riskof an unusual nature or that could result in serious injury or death or a risk that consumers could not reasonably be expected to be aware of or notice, the supplier must specifically draw the consumer’s attention to those risks and retain proof that the consumer has expressly or by their conduct assented to accepting those risks.

Written contracts

  • If a consumer agreement between a supplier and a consumer is in writing, whether as required by the Act or voluntarily between the parties, it will be valid irrespective of whether or not the consumer signs the agreement. The supplier must provide the consumer with a free hard or electronic copy of the terms and conditions of that agreement.

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26.What about unlawful provisions in software contracts?

 

  • A supplier cannot make any agreement with a consumer subject to any term or condition ifits general purpose or effect is to defeat the purposes and policy of the Act.
  • Any terms and conditions in an agreement which mislead or deceive the consumer will be void.
  • Any limitation or exemption from liability for any loss directly or indirectly attributable to the gross negligence of the supplier or any person acting for or controlled by the supplier will be unlawful.
  • Standard form clauses which falsely express an acknowledgement by the consumer that before the agreement was made, no representations or warranties were made in connection with the agreement by the supplier or a person on behalf of the supplier; or that the consumer has received goods or services, or a document that is required by the Act, will be void.
  • Any forfeiture clauses which require the consumer to forfeit any money to the supplier if the consumer exercises any right in terms of the Act or to which the supplier is not entitled in law will be unlawful.
  • Any term authorizing the supplier to enter any premises for the purposes of taking possession of goods to which the agreement relates or an undertaking by the consumer to sign in advance any documentation relating to the enforcement of the agreement, irrespective of whether such documentation is complete or incomplete at the time it is signed will be unlawful.
  • Any consent to pay predetermined costs relating to the enforcement of the agreement will be unlawful.
  • If, in any proceedings before a court concerning a transaction or agreement between a supplier and a consumer, a person alleges that an agreement, a term or condition of an agreement, or a notice to which a transaction or agreement is purportedly subject, is void or failed to satisfy any applicable notice requirements, the court may make an order severing any part of the relevant agreement, provision or notice, or alter it to the extent required to render it lawful, if it is reasonable to do so having regard to the transaction, agreement, provision or notice as a whole; or declaring the entire agreement, provision or notice void as from the date that it purportedly took effect; and make any further order that is just and reasonable in the circumstances with respect to that agreement, provision or notice, as the case may be.

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27. What constitutes defective software?

 

The Act is aimed at protecting consumers from hazards to their well-being and safety and to develop effective means of redress for consumers who buy defective or unsafe products, including software.

The Act gives consumers the right to demand safe, good quality goods from suppliers and this right is enforced through a compulsory 6 month warranty of quality on all products sold, and strict liability for suppliers across the supply chain for any and all loss caused by defective, unsafe or failed products.

Software sold to consumers must comply with the following requirements and standards:

  • It must be reasonably suitable for the purposes for which it is generally intended or for a specific purpose if the consumer has specifically informed the supplier that he or she is buying the software for that specific purpose, and the supplier normally deals in that software or is knowledgeable about its use;
  • The software must be of good quality, in good working order and free of any defects;
  • The software must be useable and durable for a reasonable period of time, having regard to the use to which it would normally be put and to all the surrounding circumstances of its supply; and
  • The software must comply with any applicable standards set under the Standards Act, 1993 (Act No. 29 of 1993), or any other public regulation.

What is regarded as a defect?

A defect could either be:

a) a material imperfection in the development of the software which renders it less acceptable to consumers; or

b) a characteristic that renders it less useful, practicable or safe.

There is no longer any distinction made between latent and patent defects and software will still be regarded as defective under the Act if the failure or defect could have been detected by the consumer before they took delivery of the software.

The quality of the software will be judged against the reasonable expectations of consumers in general and not just against those of the particular consumer.

Goods must be judged against the reasonable expectations and standards that existed at the time they were supplied and not against newer and/or better goods that have subsequently become available from the same or any other producer or supplier.

In determining whether software is defective, the courts will take into account all the surrounding circumstances, including the following:

  • the stated purposes for the software;
  • the manner in which the software was marketed, packaged and displayed;
  • the use of any trade description or mark on the packaging of the software;
  • the inclusion of any instructions or warnings with respect to the use of the software;
  • the range of things that might reasonably be anticipated to be done with or in relation to the software; and
  • the time when the software was developed and supplied.

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28. Must software come with a ‘warranty of quality’?

 

  • Every sale of software must be backed up by a 6 month warranty from the supplier that the software will meet the necessary quality and safety requirements and standards. If not, the consumer can return the software to the supplier, and the supplier must either repair or replace the software or refund the price paid.
  • The 6 month warranty does not apply to software that is sold “as is”, i.e. in a specific condition, when the consumer has been advised of that condition and has agreed to buy the software anyway. A consumer will also lose their warranty protection if they have altered the software contrary to the instructions that accompany it.
  • If the consumer opts to have the software repaired by the supplier, a further 3 month warranty must be given on the repair. If the failure, defect or unsafe feature has not been sorted out, or a new problem appears within that 3 month period, the supplier must then replace the software orrefund the consumer.
  • The 3 month repair warranty will be void if the consumer has subjected the software to any misuse or abuse. The warranty also does not apply to ordinary wear and tear.

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29. Who has legal liability for harm caused by defective or unsafe goods?

 

The developer, importer, distributor or retailer of any software will be liable for any harm caused wholly or partly as a consequence of:

  • That person supplying unsafe software, i.e. software that poses an extreme risk of personal injury or property damage to the buyer, user or other persons;
  • Any failure, defect or hazard in the software; or
  • Inadequate instructions or warnings were provided to the consumer pertaining to any hazard arising from or associated with the use of the software.

The harm contemplated by the Act includes:

  • the death of, or injury to, any natural person;
  • an illness of any natural person;
  • any loss of, or physical damage to, any property, irrespective of whether it is movable or immovable; and
  • any economic loss that results from harm contemplated in 1-3 above.

A consumer seeking damages against a supplier no longer has to prove that the harm resulted from any negligence on the part of the supplier.

In order to counter the possible negative effects of introducing strict product liability, the legislature has also introduced a number of possible defences that can be raised by suppliers facing lawsuits for defective or unsafe products.

These defences are as follows:

  • The unsafe product characteristic, failure, defect or hazard that results in harm is wholly attributable to compliance with any public regulation.
  • The alleged unsafe product characteristic, failure, defect or hazard did not exist in the software at the time it was supplied.
  • The alleged unsafe product characteristic, failure, defect or hazard was wholly attributable to compliance by that person with instructions provided by the person who supplied the software to that person.
  • It is unreasonable to expect the distributor or retailer to have discovered the unsafe product characteristic, failure, defect or hazard, having regard to that person’s role in marketing the software to consumers.
  • The claim for damages has prescribed, i.e. it is brought more than 3 years after the death or injury occurred; or more than 3 years from the date the plaintiff first had knowledge of the material facts about an illness or property damage caused by the software in question; or more than 3 years from the latest date that the plaintiff suffered any economic loss caused by the software in question.

The court hearing the damages claim will still be entitled to assess whether any harm has been proven and adequately mitigated and will determine the extent and monetary value of any damages, including economic loss.

If, in a particular case, more than one person is liable for the harm caused, their liability is joint and several and the court may apportion liability among the persons found liable as it deems fit.

In the EU, goods must conform to what is reasonably expected of them. The trader will be liable for any lack of conformity.

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30. What is a suretyship?

 

A suretyship is an agreement between three parties being the creditor, the principal debtor and the surety. In terms of this agreement, a surety in his/her personal capacity undertakes to fulfil the obligations due to the creditor by the principal debtor in the event that the principal debtor fails in whole or in part to fulfil the obligations him/herself.

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31. What are the requirements and when does it become enforceable?

 

The General Law Amendment Act, 50 of 1956 provides that a valid suretyship agreement must be embodied in a written document signed by or on behalf of the surety. A suretyship agreement cannot however exist without a principal obligation. Therefore, the creditor can only claim performance of the obligation from the surety if there is a principal debt and the principal debtor fails to perform in terms of the principal obligation. It must also be the clear intention of the parties to enter into a suretyship agreement and the parties must agree on the extent to which the surety accepts liability and the period for which the surety can be held liable.

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32. What is a co-principal debtor?

 

Most suretyship agreements bind the surety as surety and co-principal debtor, which means that the surety’s obligations are equivalent to those of the principle debtor and he is jointly and severally liable to the creditor. One of the potential consequences of signing as co-principal debtor results in the renunciation of the benefits of excussion. The means that the creditor need not recover the debt form the principal debtor first before enforcing the agreement against the surety.

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33. Is it possible to limit your liability?

 

The only way to limit our liability is to satisfy yourself as to the identity of the other parties concerned, the nature and extent of the debt and the period for which you can be held liable. It is important to note that “continuing covering suretyship” clauses are often included in credit agreements. These can potentially bind the surety in perpetuity for the debts of the principal debtor, and bind the surety for debts that may become due any time in the future, even if that surety is no longer involved in any way with the debtor. It is further advisable not to sign as co-principal debtor where such can be avoided.

Does the National Credit Act 34 of 2005 (“NCA”) apply?

The court has held that the NCA could apply suretyship agreements and that it clearly fell within the definition of a “credit guarantee” as set out in section 8(5). However, it would only apply to a surety to the extent that the NCA applies to the underlying credit facility or credit transaction (principal debt) in respect of which the suretyship is granted.

Furthermore, where the principal debtor in terms of the agreement is not a “consumer” as defined in the NCA, the surety would not be able to rely on the protection afforded by the NCA. If the NCA is applicable to suretyship the surety would be able to rely on various protection measures of the NCA, i.e. raising the defence the credit guarantee itself amounts to “reckless credit lending”, or that the entire underlying credit agreement is unlawful. The credit provider would also have to follow the special debt collection procedure set out in the NCA if he/she wishes to enforce credit agreement where the principal debtor has defaulted.

 

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