Civil, natural and moral obligations

A moral obligation, such as the duty to fulfill a promise to join a friend at the nets on Friday for cricket practice, is not regarded as a legal obligation; it has no legal significance at all. The duty derives merely from a social agreement, or from the dictates of one's conscience.^[43]

A civil obligation, most common in contracts, is a legal obligation enforceable by a right of action, so that, if the obligation is not fulfilled, the creditor may sue the debtor for breach.^[43]

A natural obligation, relatively unusual, may not be enforced in a court of law, but it is not without legal significance:

• If a person performs in terms of a natural obligation, he may not later reclaim the performance on the basis that it was not owed. If performance is made, it is regarded as having been owed.^[44]
• Natural obligations may be set off against civil obligations.

Natural obligations arise when, for example, a minor concludes a contract: If the other party is major or a juristic person, he is bound by a civil obligation, but the minor is bound only by a natural obligation. Another example would be a betting agreement or wager.^[43]

Reciprocal obligations

Reciprocal obligations are linked obligations, where one obligation is owed in exchange for another:

In a contract of sale, therefore, payment of the purchase price and delivery of the object of the sale are owed in exchange for each other: the purchaser therefore does not have to pay unless the seller delivers.^[43][45]

Another example is a contract of lease, where the obligation to pay the rent is tied in with the obligation to let the premises. Where there are two obligations, 'there are two rights, two duties, and therefore two creditors and two debtors'.^[43]

Simple, alternative, generic or facilitative obligations

• A simple obligation involves a performance that has been specified exactly by the parties in their agreement. An alternative obligation is one in which the parties agree that someone can choose a performance from two or more specified alternatives. A generic obligation is one that allows a party to choose a performance from a specified family of performances. A facilitative obligation specifies the performance owed by the debtor, but gives the debtor the right to choose to make a different specified performance.
• An indivisible performance gives rise to a single obligation. A divisible performance gives rise to more than one obligation. There are as many obligations as there are indivisible performances owed in terms of a contract. A divisible contract is one that can be divided into separate contracts, each having one or more obligations.

Some categories overlap, as certain obligations fall simultaneously into several of them: "For example, an obligation relating to the delivery of a table lamp might be a civil, simple and reciprocal obligation, as well as entail an indivisible performance".^[43]

Signed contracts: caveat subscriptor

A person who signs a written contract is ordinarily bound by its terms in terms of the maxim caveat subscriptor: let the signatory beware.

Standard-form contracts

Express terms in standardised contracts are dealt with differently from express terms negotiated by the parties, in that a party presenting a standardised contract to another for signature is expected to draw his attention to any unexpected terms, failing which the signatory may not be bound.

Unsigned documents

Express terms may also be incorporated into a contract by reference to one or more other documents.

Ticket cases and notices

A ticket, with express legal terms.

Express terms contained on tickets and notices that are posted up in public places may also be binding, depending on whether the party denying that he is bound by the terms was aware of their existence or ought reasonably to have been aware of them in the circumstances.

Consumer Protection Act

The Consumer Protection Act provides that customers' attention must be drawn to certain categories of clauses or notices that could be prejudicial. In respect of serious or unexpected risks, customers must indicate their assent by signature or by other positive conduct.

Terms prohibited by law/implied terms

Certain terms are prohibited by law. Terms contrary to public policy, or in conflict with a statutory prohibition are not enforced. Sometimes courts are given the power to modify objectionable terms.

Tacit contracts

Tacit contracts are inferred from the conduct of the parties and are very controversial. Some writers hold that terms expressed by the parties' conduct may be regarded as tacit, whereas others hold that actual agreement is necessary. Tacit contracts also present problems as to their conceptual basis, the question being whether or not they should fall under the banner of express terms at all.

Terms implied ex lege

A term implied in law (a naturale) is one that the law, in the absence of agreement to the contrary by the parties, and in some cases compulsorily, attaches to the particular class of contract. Many of the terms of performance or obligations of the parties in contracts such as sale, letting and hiring, or agency, are implied in law. For example, suppose that the owner of a grandstand lets a seat on it to a spectator for a certain day. The former is under an obligation to keep the stand in a proper state of repair, a term to that effect being implied in law in all contracts of letting and hiring of property.

Terms implied ex lege, or in law, may derive from the common law (as developed by the courts), from trade usage or custom, or from statute. (In the case of the common law, they have already been discussed in the section dealing with naturalia.) Terms implied ex lege may be varied or excluded expressly by the parties.

A custom is a particular rule that has existed, either actually or presumptively, from time immemorial in a particular locality, where it has obtained the force of law despite conflicting with or not being found in the general law of the land.

A term can be implied on the basis of trade usage, but such an implication is made not in law, strictly speaking, but on the basis of the parties' presumed intentions. Trade usages do not apply to a particular space; they develop in a particular profession or trade. In the case of Golden Cape Fruits v Fotoplate,^[49] Corbett JA established the requirements. The trade usage must be:

• Uniformly and universally observed
• Long established
• Reasonable, so that one would expect people in the trade to be aware of it
• Notorious
• Certain
• Not in conflict with positive law
• Not conflict with an express term of the contract

In Coutts v Jacobs,^[50] for instance, Jacobs consigned goods to Coutts, who sold them and charged commission, which Jacobs refused to pay. The judgment went against him, the court finding that there was a trade usage whereby wool sales agents were entitled to charge commission.

Tacit terms

A term implied in fact is generally referred to as a tacit term. A tacit term is a wordless understanding between contracting parties. These are terms the parties must have had in mind but did not expressly articulate because they are so obvious. A tacit term is implied where the contract is silent on the point, but where it is clear that the parties intended to include the term, and they would not have contracted other than on the basis of that term. A tacit term, accordingly, has the same legal effect as an express term. It is derived from the common intention of the parties, and is in this way an exception to the parol evidence rule.

The common intention of the parties in such a case is inferred by the court from the express terms of the contract and the surrounding circumstances, including the subsequent conduct of the parties. Suppose, in the example given above, that the spectator hired the seat for the purpose of seeing a certain ceremony that both parties contemplated would take place on that day, but that no express reference to the ceremony was made by the parties in contracting. A term is implied from the circumstances that the hiring is conditional on the ceremony taking place on the day in question.

The courts often deploy the officious-bystander test^[51][52] to determine whether or not a contract contains a tacit term, imagining that an impartial bystander had been present at the conclusion of the contract and had asked what might happen in a situation the parties had not expressly foreseen: If the answer is self-evident to the parties, the term is taken to be incorporated as a tacit term. If, therefore, the parties are engaged in a particular trade and know that there is a trade usage governing their transaction, they are taken to have tacitly incorporated it into their contract.

There being a presumption that parties in entering into an agreement have given expression to all the terms by which they intend to be bound, the courts are slow to find that an implied term affects their reciprocal obligations and will never do so if the effect of the implication would be to prejudice the rights of third parties. A term will not be implied merely because it is reasonable to do so; the courts will not make a contract for the parties. The implication must be necessary in the business sense to give efficacy to the contract. It is not necessary, however, that the parties should have consciously envisaged the situation. It is sufficient that their common intention was such that a reference to such a possible situation by a hypothetical 'officious bystander' would have evoked from them a prompt and unanimous assertion of the implied term. A term sought to be implied in a contract must be capable of clear and exact formulation. The party claiming the existence of a tacit term must formulate it clearly and precisely.

Whether or not a term is implied depends upon the facts of each particular case. One general question concerns the effect of a contract's being reduced to writing. An entire agreement clause in a contract has been said not to preclude the existence of a tacit term; it seems this also holds good when a statute requires the terms of the contract to be in writing. Another question related to the standard of proof that must be satisfied. The Appellate Division left this unanswered, after noting that there are two lines of authority when it comes to the proof of tacit contracts. Although none of them purports to resolve the issue, more judicial pronouncements follow the more stringent test that there must be no other reasonable interpretation than that the parties intended to, and did in fact, contract on the terms alleged than follow the less demanding 'most plausible probable conclusion' test.

Effect of fulfilment

This is the most common form of conditional classification.

If the parties agree that the performance of obligations under the contract is not enforceable until a certain condition is fulfilled, that condition is a suspensive one. As Van den Heever J noted, however, in Odendaalsrust Municipality v New Nigel Estate Gold Mining,^[53] "The contract (in the modern sense, now that all contracts are consensual) is binding immediately upon its conclusion; what may be suspended by a condition is the resultant obligation or its exigible content".^[54] In other words, the contract comes into being when the agreement is entered into, but the requirement of performance kicks in only if and when the condition is satisfied. In the example of a father who promises his daughter that he will buy a car for her if she passes her examinations, the contract forms when these terms are agreed to, but the father's obligation to buy the car sets in only if his daughter passes her examinations. Usually a suspensive condition must be fulfilled within a reasonable period of time, though sometimes the parties attach a period of time to the condition. A suspensive condition (or condition precedent), therefore, is one that suspends the operation of the obligation until the condition is fulfilled.

Pending the fulfilment of the suspensive condition, the parties are clearly in a contractual relationship from which neither may unilaterally resile. Although the operation of the contract is suspended, it gives rise not merely to a spes debiti but to contingent rights and duties that are recognised by law. For example, those rights may be protected by interdict, are capable of cession, and are transmissible on death. Until the condition is fulfilled, however, the obligation is neither enforceable nor capable of being performed. The better view is that the nature of the contract is unaffected by the condition. In the example given above, the contract is not innominate prior to fulfilment of the condition; it is simply a conditional sale.

Upon the fulfilment of the condition, however, the contract becomes absolute, and it has a retroactive effect. It dates back to the moment when the agreement was made, which is then regarded as having been unconditional from the outset. A suspensive condition must be fulfilled in its entirety, unless the parties intended that fulfilment of part of the condition should entail performance of part of the promise.

If the condition is not fulfilled, the obligation is treated as void ab initio, unless the condition is for the sole benefit of a party who waives the benefit of the condition within the time stipulated for fulfilment, by proper notification to the other party. Where no time is stipulated, the obligation is discharged if a condition, of a type that is not for the specific benefit of one party only, remains unfulfilled after the lapse of a reasonable time.

Another example of a suspensive condition is a sale of a thing subject to the thing's being approved of by a third person.

A suspensive condition should not be confused with a term or stipulation relating to time of performance. In the case of a suspensive condition, the operation of the obligation flowing from the contract is suspended, in whole or in part, pending the occurrence or non-occurrence of a particular specified event. A term of the contract, on the other hand, imposes a contractual obligation on a party to act, or to refrain from acting, in a particular manner. A contractual obligation flowing from a term of the contract can be enforced, but no action lies to compel the performance of a condition. It follows that a provision as to time of performance is simply a term of the contract: for example, where a company on a certain date declares a dividend 'payable to all shareholders registered' on a certain later date the right to the dividend vests in the shareholders on the date of the declaration, but the dividend is claimable only on the later date.

The nature of the contract may affect the rights of the parties when there is a suspensive condition.^[55] It has been held that, where an agreement of purchase and sale has been entered into subject to a suspensive condition, no contract of sale is then and there established; it develops into one of sale only on fulfilment of the condition.^{[56][57][58][59]}

This statement of the law, or what has been described as the Corondimas principle, has been much criticised, even though it has consistently been applied in subsequent cases. Although it was applied again, on the grounds of precedent, by the Appellate Division in Tuckers Land and Development v Strydom, its correctness was questioned and criticised, obiter by Van Heerden JA, and directly by Joubert JA. The latter, reviewing the old authorities, showed that the principle was not in accordance with Roman and Roman-Dutch law. "It would seem, however", wrote Tebbutt J in ABSA v Sweet,^[60] "that in a contract of lease no such considerations apply and a contractual relationship comes into existence between the lessor and the lessee on the signing of the lease although the resultant obligations arising from the lease may be suspended".^[61] It is apparently also now accepted,^{[62][63][64][65][66][67]} when a suspensive condition is fulfilled, that the contract and the parties' mutual rights 'relate back to, and are deemed to have been in force from, the date of the agreement and not from the date of the fulfilment of the condition, i.e. ex tunc’.^[68]

On the other hand, if the parties agree that the obligations under a contract should operate in full, but comes to an end if an uncertain future event either does or does not happen, they are said to have agreed to a resolutive condition (or condition subsequent). The continued existence of the contract depends on the event happening or not happening, as the case may be: for example, "I shall buy and give you a car on the condition that, if you fail your exams, I will take the car back." Another example would be a contract of sale whereby one sells a car on the condition that, if the buyer fails to pay the price by a certain date, it will be repossessed.

A resolutive condition, then, is one that discharges an existing obligation the moment the condition is fulfilled. Prior to the fulfilment of the condition attached to the contract, the contract has full legal effect, and either party may claim performance by the other of his obligations. Upon the fulfilment of the condition, the contract is terminated and is regarded as if it had never existed. The consequence is that each party may claim to be restored to his original position. For example, if Jess fails her exams, she must restore the car to Rodney.

Nature of the event

A positive condition depends on the occurrence of an uncertain future event: 'If Richman marries Anjanette', for example. A positive condition is fulfilled if and when the event contemplated by the parties takes place. It is fair to say that the preponderance of suspensive conditions is positive.

A negative condition depends on an uncertain future event's not happening. When it becomes clear that an event can no longer take place, the condition is satisfied and the agreement works on that basis. Negative conditions are generally resolutive.

Who has the power of fulfilment

Conditions may also be potestative, casual or mixed, depending on whether the operation of the obligation is dependent on the creditor's actions or on events beyond the control of the parties.

A causal condition depends for its fulfilment on some third party or outside agency or event, like chance, and not upon the action of either party: 'If Armand attains the age of twenty-five', for example, or 'If Armand has children'. The classic example is a contract of insurance, whereby the insurer makes a promise of reimbursement in the case of loss (as, for example, by flood or fire).

A potestative condition depends for its fulfilment on one of the contracting parties; it is entirely in the power of one of the parties. An example would be where Zola agreed to give her neighbour, Jaylynne, a sum of money if Jaylynne would cut down a tree that obstructed her view. If Jaylynne undertakes to cut down the tree in return for the money, the agreement is not conditional: Jaylynne is bound to perform her side of the bargain. A pure potestative condition si volam, which reserves to the promisor an unlimited choice as to whether to perform or not—"I shall give you R100 if I so wish"—clearly gives rise to no obligation whatsoever, but the position is otherwise if fulfilment depends on the will of the promisee (where, for example, Andrew gives Bianca an option to buy his farm). A potestative condition may be negative, as where Andrew makes a gift to Bianca on condition that Bianca refrains from doing something. A promise subject to a negative potestative condition is exigible only at the death of the promisee, for only then is the condition fulfilled.

A mixed condition is one composed of both elements: casual and potestative: for example, 'If Francois (one of the contracting parties) marries Cindi (some third person)’, or 'if the children continue to reside with their mother (the beneficiary)’. A mixed condition depends for its fulfilment on both or one of the parties to the contract, as well as a third party or chance event. It is a mixture of the potestative and the causal. As an example, quite common in wills, one may make an obligation under a contract subject to the condition that the other party marry someone.

The condition attached to the obligation must be possible.

Fictional fulfilment

Even if, in the case of a positive condition, the contemplated event does not take place, there may be what is called 'fictional fulfilment' of the condition. A contracting party must not obstruct the fulfilment of a condition. If the party who would be bound by the condition being fulfilled deliberately prevents its fulfilment to escape the obligation, the condition is deemed to have been fulfilled—with the consequence that the obligation becomes absolute. A legal fiction comes into effect. MacDuff v JCI^[69] is the leading case in this area.

Although negligent prevention of fulfilment does not trigger this principle, there may be a duty on a party to take active steps to bring about fulfilment of the condition, either because the contract stipulates such a duty or because omission of such steps would render fulfilment impossible. In such a case neglect to take the steps would bring about fictional fulfilment. For example, if Perry agrees to buy Robert's house, subject to his obtaining a loan from a bank or building society by a certain date, and Perry makes no effort to obtain the loan because of a sudden slump in the property market, the condition is considered fulfilled, and Perry is bound to the contract of sale. The operation of this principle is subject to the interests of third parties.

The above refers to suspensive conditions. It is generally thought that the principle of fictional fulfilment can be extended to the fictional non-fulfilment of a resolutive condition although there is no Roman-Dutch authority precisely in point.

Assumptions and suppositions

The effect of a contract or obligation is often made contingent on the truth of an assumption the parties have made about a past or present fact. If Johann and Piet, for example, are negotiating a contract to buy and sell a painting, Johann may stipulate that he will make the purchase only if the painting is an original Rembrandt. They call in an expert. If their supposition is confirmed, the contract proceeds, if not, the contract falls away. Similarly, Fourie v CDMO Homes^[70] involved a sale of land, adjacent to a river, by CDMO to Fourie, whose offer had been subject to the following condition: that there were pump rights to the river. Although the parties were unsure that this was so, they concluded their agreement on the supposition that pump rights existed.

Modal clauses

A modus is a term wherewith one party qualifies the other party's right to performance in some way. Usually it involves the condition that the other party use or refrain from using the performance in a particular way. Failure to comply with a modal clause constitutes a breach of contract.

Contracts of donation often have modal clauses attached to them. For example: "I will donate R100,000 bursary to Rhodes University for a Catholic male student." If, ignoring for present purposes the constitutional limits on freedom of testation,^[71] the university should instead make that bursury available to a Muslim female, it would be in breach.

Examples of modal clauses include property contracts, restrictive covenants and negative servitudes that have to be registered. They are commonly attached to the contract.

Warranties

A warranty is a written assurance that some product or service will be provided or will meet certain specifications. The relevant contracting party assumes absolute or strict liability for performance. In Schmidt v Dwyer,^[72] it was ruled that a warranty could not be overridden by a voetstoots clause.

There are, generally speaking, three kinds of warranty:

1. Express warranties, to which the parties expressly agree, and include in the written contract
2. Implied warranties, which are determined as per the officious-bystander test
3. Residual warranties, which apply to contracts because of the operation of the common law, as in the case of Van der Westhuizen v Arnold, with the warranty against eviction, or in the case of the rule against selling defective goods

Exemption clauses

Exemption or exclusionary clauses are the opposite of warranties, exempting persons from liability that would ordinarily apply to them under the law, or limiting their liability. To be effective in a given instance, such a provision must, of course, form part of the contract, and also encompass the liability and circumstances at issue. The law must also permit the alleged exemption or exclusion. Whether or not an exemption or limitation forms part of a contract turns on whether or not it has been agreed to, and usually depends on the operation of the doctrine of quasi-mutual assent, which protects someone who reasonably assumes that the other party assents thereto. The assent may be indicated:

• By a signature on a document (in which case the principle is traditionally expressed by the phrase caveat subscriptor)
• By conduct, which is the case where the clause appears, for example, on a ticket or on a notice at the entrance to premises

The facts of a particular case may fit into both classes. Hutchison and Du Bois submit "that this classification is merely a matter of convenience and of no actual importance".^[73] Whether the exemption or limitation forms part of any document or notice assented to depends on the interpretation of the pertinent document in accordance with the principles discussed above. In the absence of actual consent, the question is essentially whether, in light of the nature and appearance of the document in question, as well as the parties' conduct, it was reasonable for the party relying on the clause to assume that the other party assented to the clause, or was prepared to be bound by the terms of the document, whatever they were. This depends especially on the:

• Steps taken to bring the existence of the clause to the other's attention
• Sufficiency of the steps, depending on the nature of the document, the clause in question, as well as its presentation
• Particular circumstances of the parties

Of course, the effectiveness of such a clause may also be nullified by the usual principles relating to misrepresentation, fraud, duress, undue influence and mistake.

Exemption clauses are commonly deployed by big business for planning, for protection from liabilities and to control variables that are otherwise uncontrolled. Although an important feature of contracts, the fact that they are used on such a large scale means that they are approached by the courts with suspicion and:

1. Interpreted restrictively,^[74] particularly if they are unclear
2. Tested against the dictates of public policy.^[75] The Constitution, as illustrated in Barkhuizen v Napier,^[76] plays an important background role here.

Oral evidence relating to the existence or validity of the contract

Oral evidence may be given to the effect that the written document did not in fact constitute a contract at all: for example that:

• The document was not intended by the parties to be binding on them, but that it was a blind to deceive other persons, and that the real contract was a prior oral agreement.
• There was a prior oral agreement constituting a condition precedent to the contract's coming into effect, and that it had not been fulfilled.
• The contract was void on the ground of mistake, illegality impossibility or lack of consensus.
• It was voidable, for instance, on the ground of incapacity of one of the parties, or on the ground of misrepresentation.
• The contract was subject to rectification by the court on the ground that, owing to a mistake, a term or condition had either been incorrectly inserted or described in the written contract, or had been omitted from it.
• The contract had been entered into on the basis of a common, false supposition.

Evidence may also be given of a prior verbal discussion to determine whether a term imposing a particular obligation was implied.

Oral evidence to explain the terms of the contract

Extrinsic evidence is always admissible to show to what persons or things or matters the terms of a contract refer, when these facts cannot be determined from the document itself. In such a case the contract is not varied, but merely applied. Oral evidence may be given, therefore,

• to identify persons or things referred to in the written document;
• to explain technical expressions or phrases, or words used in a peculiar sense different from the ordinary meaning by reason either of special circumstances, or by virtue of trade usage (provided, it seems, that the usage is not inconsistent with the clear terms of the written document); or
• to elucidate ambiguous expressions (those capable of more than one meaning, either in themselves or as used with their context);

but not, apparently, where the language is clear and explicit, or where the meaning of the word is a matter of law.

Collateral agreements

Parol evidence is always admissible to show that the written contract is only part of the whole transaction, and that a separate oral agreement made at the same time was not incorporated in the written agreement—provided that the oral agreement referred to a matter on which the document is silent, and is not inconsistent with the terms of the written contract. It follows in these circumstances that two contracts may be proved, the one written and the other oral. Evidence, therefore, may be given of:

• An agreement for consideration additional to that mentioned in the written contract
• A collateral inducement by which one of the parties was persuaded to enter into the contract, even if the written agreement is one required by the law to be in writing

On the other hand, evidence of an oral agreement is not admissible if its terms are inconsistent with those of the written agreement—as, for example, where the acceptor of a bill of exchange alleges that the payee had orally agreed with him that he would be liable for the full amount of the bill. Similarly, where a deed of sale of land sets out the purchase price and also states that the land is sold without encumbrances, evidence is not admissible of a prior or contemporaneous oral agreement that the price was fixed at some other figure, or that the land was sold subject to a servitude.

Likewise, where there are not two collateral agreements but one composite contract, a portion of which is written and the remainder oral, evidence may be led to prove the supplemental oral portion, provided it is clear that the parties did not intend the written portion to be the exclusive memorial of the entire agreement. In such a case, termed a "partial integration", the integration rule merely prevents the admission of extrinsic evidence to contradict or vary the written portion of the agreement. The court may hear evidence of surrounding circumstances, including the negotiations of the parties, to determine whether they intended the written agreement to be an integration of their whole transaction or merely a partial integration.

Textual context

The courts must have regard firstly (after determining the literal meaning) to "the context in which the word or phrase is used with its interrelation to the contract as a whole, including the nature and purpose of the contract."^[116] If there be difficulty, even "serious difficulty," it should "nevertheless be cleared up by linguistic treatment," if this is possible.^[117]

While grammatical meaning is the starting point of interpretation, words depend by necessity for their meaning on the contract as a whole. An understanding of the meaning of individual words must be gained from the wording of the contract as a whole: "It is, in my view, an unrewarding and misleading exercise to seize on one word in a document, determine its more usual or ordinary meaning, and then, having done so, to seek to interpret the document in the light of the meaning so ascribed to that word."^[118][119] The next step, accordingly, is to interpret the wording of a contract in the context of other provisions in the document read as a whole: that is, the textual context. This is done to give effect to the contract, rather than to make it ineffectual. The words are to be construed in their extended context: One may point to one of several "ordinary" meanings, or to an unusual or technical meaning.

Broader context

If, then, the language of the contract is clear and unambiguous, or if any uncertainty that may exist can be resolved satisfactorily by linguistic treatment, evidence of "surrounding circumstances"—that is to say, "matters that were probably present to the minds of the parties when they contracted"—is unnecessary and therefore inadmissible: cum in verba nulla ambiguitas est, non-debet admitti voluntatis quaestio. If intra-textual treatment does not clearly yield the intention of the parties, the interpreter must look to the extended context to draw useful inferences from the nature of the contract, its purpose and the background against which it was concluded. In other words, only if a consideration of the language in its contextual setting fails to produce sufficient certainty (the degree of certainty required being left to the discretion of the individual judge) may evidence of "surrounding circumstances" be led. Even then, however, recourse may not be had to evidence of what passed between the parties in the course of negotiating the contract unless a consideration of the "surrounding circumstances" fails to resolve the difficulty.

If the problem cannot be sorted out with reference to the language, a court may be informed of the background circumstances under which the contract was concluded. These are matters of an uncontentious nature, such as the relationship in which the parties stood to one another at the time of contracting, which may help to explain the context of the contract. They convey "the genesis and purpose of the contract, i.e. [...] matters probably present to the minds of the parties when they contracted,"^[120] but not the actual negotiations and similar statements.^[121] The sole purpose of such evidence, it is still said, is to enable the court to understand the broad context in which the words requiring interpretation were used. Although "it is commonly said that the Court is entitled to be informed of all such circumstances in all cases,"^[122] this does not permit it to arrive at a different interpretation if the meaning is already clear from the words themselves.

Surrounding circumstances

Finally, but only "when the language of the document is on the face of it ambiguous,"^[123] and its meaning therefore uncertain,^[124][125] the courts may consider surrounding circumstances: "what passed between the parties during the negotiations that preceded the conclusion of the agreement."^[126][127] These include "previous negotiations and correspondence between the parties, [and] subsequent conduct of the parties showing the sense in which they acted on the document, save direct evidence of their own intentions"^[128] (by which is meant actual negotiations between the parties).

Where even the use of surrounding circumstances does not provide "sufficient certainty"^[121]—where, that is, there is ambiguity in the narrow sense—and there is still no substantial balance in favour of one meaning over another; where, in other words, the case is one "of 'ambiguity' as opposed to mere 'uncertainty,'"^[125][129] then "recourse may be had to what passed between the parties on the subject of the contract."^[130] The court may also refer to evidence of the parties' negotiations: the way they acted in carrying the contract out. The court should use outside evidence as conservatively as possible, but use it if necessary to reach what seems to be sufficient certainty as to the meaning.^[130] The court is still not allowed, however, to hear evidence as to what the parties subjectively thought the disputed term meant.

Too literal

The contention is made that so literalist an approach overlooks the fact that language may be imprecise, with no single meaning. The contention that words are always susceptible to one clear meaning is doubious. If this were the case, there would very rarely be the need to approach the court to interpret them.

Too hierarchical

The hierarchical nature of the exercise has also been criticised. While its rigid procedures may look good on paper, moving progressively, until a solution is found, through all the options available, in practice it is difficult to apply in court; indeed, the courts very rarely follow it, as it extends proceedings unnecessarily; instead the whole exercise is usually integrated, with counsel leading as much evidence as possible.

There is, therefore, a clear disconnect between theory and practice in this area of the law, although judicial support has been expressed for a more liberal approach to interpretation. The oft-quoted assertion that "the rule of interpretation is to ascertain, not what the parties' intention was, but what the language used in the contract means, i.e. what their intention was as expressed in the contract", has been treated very circumspectly. The principle tends to obscure the consensual basis of the South Africa law of contract, it is said, and is not inflexible, but subject to qualification. The words employed in a contract cannot be viewed in isolation, divorced from the matrix of facts in which they are set, if the intention of the parties is to be ascertained. While the first step in construing a contract is still to ascertain the ordinary, grammatical meaning of the words used, "it should be recognised that very few words have a single meaning, and even the 'ordinary' meaning of a word may vary according to, or be qualified by, the factual context in which it is used".^[136] A court should therefore be alive to the various possible meanings of the words, and should not approach the matter on the basis that a particular meaning predominates. It should also have regard to the nature and purpose of the contract, as well as the context of the words in the contract as a whole.

Terminologically confusing

Clearly the line between such "background circumstances" and other "surrounding circumstances" is a fine one. It has been contended, indeed, that the distinction between background and surrounding circumstances is imprecisely drawn. "Perhaps," as Lewis AJA put it in Van der Westhuizen v Arnold, "it is a distinction without a difference."^[137] It is clear that "background circumstances" are always admissible, whereas "surrounding circumstances" are admissible only when linguistic treatment is unsuccessful: that is, where ambiguity exists. It is unclear, however, what separates them in substance. Background circumstances are "matters probably present to the minds of the parties when they contracted,"^[120] while surrounding circumstances have been defined as "what passed between the parties during the negotiations that preceded the conclusion of the agreement."^[138] It stands to reason, though, that "what passed between the parties during the negotiations that preceded the conclusion of the agreement" very often includes "matters probably present to the minds of the parties when they contracted." So difficult has it proven in practice to separate them that "no-one knows precisely what the dividing line between the two categories is." The whole procedure has been "bedvilled by the haziness,"^[131] and the future utility of the distinction is questioned.

The question was raised as far back as 1979, in Cinema City v Morgenstern Family Estates, "whether the stage of development has been reached where the 'open sesame' of uncertainty may be dispensed with as a prerequisite to opening the door to evidence of surrounding circumstances, in either a limited or wider sense." This would have gone some way toward eliminating the background-surrounding differentiation. The court found, though, that it was "unnecessary to express any opinion" on the matter for the purposes of that case.^[139]

The question is now being asked, "pertinently",^[136] why evidence of "surrounding circumstances" should not be admissible in all cases, if the goal is to place the court as near as may be in the situation of the parties to the instrument. Such an approach would be "less artificial, more logical, consistent with modern thinking on the meaning of language, and would avoid the danger of a court enforcing a term in a contract to which neither party subscribed".^[140]

No court yet has gone so far as to rescind the Delmas paradigm. The courts continue to profess allegiance to the traditional approach. Nevertheless, an apparently more liberal attitude to the admission of evidence of contextual facts, however classified, as well as a growing emphasis on purposive interpretation, "herald a more flexible and sensible approach in practice".^[140] The strongest judicial attack on Delmas to date was launched by Harms DP in KPMG v Securefin:

The integration (or parol evidence) rule remains part of our law. However, it is frequently ignored by practitioners and seldom enforced by trial courts [...]. The time has arrived for us to accept that there is no merit in trying to distinguish between "background circumstances" and 'surrounding circumstances". The distinction is artificial and, in addition, both terms are vague and confusing. Consequently, everything tends to be admitted. The terms "context" or "factual matrix" ought to suffice.^[141]

This obiter dictum has been read as effectively heralding a new era in the interpretation of contracts in South Africa, suggesting that the Supreme Court of Appeal will abandon the distinction "as soon as it is presented with an opportunity to do so."^[142]

Mora debitoris

Mora debitoris is the culpable failure of a debtor to make timeous performance of a positive obligation. There are five requirements:

1. The debt must be due and enforceable. The creditor must have a valid right to claim performance forthwith, against which the debtor can raise no valid defence, such as prescription, non-fulfilment of a suspensive condition, or the exceptio non-adimpleti contractus.
2. The performance must have been fixed for a particular time, either in the contract or by way of a subsequent demand for performance. The mere fact that the debt is due does not mean that failure to perform constitutes mora, since timeous performance presupposes certainty as to the time for performance. The debtor can fall into mora only when a definite time for performance has been fixed, either in the contract itself (mora ex re) or by the creditor subsequently making a demand (interpellatio) on the debtor to perform by a specific date that is reasonable in the circumstances (mora ex persona).
3. The debt must (in spite of the failure as yet to perform) still capable of performance, since otherwise the breach consists in rendering performance impossible.
4. The delay must be the debtor's fault. It must be his responsibility, not out of his control. If, for example, performance was rendered temporarily impossible by vis major or casus fortuitus, or if the debtor could not reasonably have been expected to know that he had to perform, or how much to perform, there is no mora. (If, however, a debtor has guaranteed timeous performance, absence of fault does not prevent him from falling into mora.) The onus of proving the absence of fault rests on the debtor.
5. The debtor must have not yet have performed.

The consequences of mora debitoris are threefold. First, supervening impossibility of performance, which is not due to the fault of either party, does not terminate the contract, contrary to the normal rule, unless the debtor can show that, even if he had performed timeously, the same fate would have befallen the prestation in the hands of the creditor (perpetuatio obligationis). In the special case of the contract of sale, this rule has the effect that the risk of destruction passes back to the seller who is in mora.

Secondly, as in all cases of breach, the innocent party is entitled to contractual damages for any loss sustained as a result of the mora, irrespective of whether he can or does rescind the contract.

Thirdly, the creditor may cancel the contract if "time was of the essence of the contract, or was made so by a notice of rescission". Time is of the essence when the parties expressly or impliedly agreed that default of performance by the day fixed would entitle the other party to cancel the contract. An express clause to this effect is known as a lex commissoria. Even in the absence of such a clause, however, the circumstances often show that the parties regard the time for performance as being of the essence of the contract: for example, where they use precise language in fixing the time, or deliberately alter the date fixed in the original draft of the contract. Time is generally of the essence of a contract in mercantile transactions, particularly in respect of commodities that fluctuate in value, but not as a rule in transactions concerning land. In all cases, however, the decisive test is the intention of the parties.

Where time is not of the essence, the creditor may make it so by sending to the debtor a 'notice of rescission', informing him that, if he does not perform by the agreed date, or by a date fixed in the notice, the creditor may cancel the contract. The time stipulated for performance must be reasonable, taking into consideration all the circumstances of the case. The notice must be clear and unequivocal. Where the time for performance was not fixed in the contract itself, both a demand for performance (interpellatio) and a notice of rescission are necessary to allow cancellation for non-performance, though both may be, and usually are, contained in the same document.

The time element, for obvious reasons the most crucial element of mora, depends on whether it is mora ex re or mora ex persona.

Mora creditoris

Where the co-operation of the creditor is necessary to enable the debtor to perform his contractual obligation, the creditor is obliged so to co-operate. Mora creditoris is the culpable failure of a creditor (the person to whom the performance is owed) to cooperate timeously with the debtor to enable him to perform. The creditor must not have repudiated the contract or rendered performance by the debtor impossible; otherwise the breach renders performance impossible.

Usually mora creditoris arises when the creditor is unavailable or inaccessible for the performance to be delivered, or if by some other means he delayed the performance. The requirements for mora creditoris are in many respects similar to those for mora debitoris. There are five conditions:

1. The debtor must be under an obligation to make the performance to the creditor, but the obligation need be neither enforceable nor due, since a debtor may discharge his debt before the due date for performance.
2. The debtor must take whatever steps towards performance that are possible without the creditor's co-operation before calling on the creditor to accept the performance. The performance offered by the debtor must be full, proper and perfect; otherwise the creditor is entitled to reject it and raise the exceptio non-adimpleti contractus.
3. The cooperation of the creditor must have been necessary. There can be no question of mora creditoris, therefore, in respect of an obligation not to do something (obligatio non-faciendi), since the cooperation of the creditor is not required in order that the debtor may refrain from acting.
4. The creditor must have failed to receive performance, or delayed in accepting it. Again, this presupposes a fixed time for performance. If no such time has been fixed in the contract, or if the debtor wishes to discharge his debt before the time fixed in the contract, he must notify the creditor of the time when he wishes to perform, allowing the creditor a reasonable opportunity to prepare to receive the performance.
5. The delay must have been the fault of the creditor. If it is occasioned by force majeure (vis major or casus fortuitus), for example, or if the creditor is entitled to reject the offered performance, there is no mora creditoris.

If, for example, a lease contract contains a term that requires the tenant to pay rent in cash on the last day of each month at the landlord's residence, and there is no-one home when he does so, the above requirements have been met. There is, therefore, mora creditoris.

The usual remedies for breach are available to the debtor. If the creditor is in mora, the risk of damage to contractual goods, caused by supervening impossibility and the debtor's negligence (short of gross negligence), passes to the creditor. Clearly, the debtor is entitled to damages for any loss he has suffered as a result of the mora, like the cost of storing merchandise or feeding animals he had to deliver. He may cancel the contract in the same circumstances as those in which the creditor may cancel for mora debitoris where time:

• Is of the essence (because of an express or implied lex commissoria)
• Has been made of the essence by the debtor's sending a notice of rescission that has been disregarded

If the debtor elects to abide by the contract, he may in suitable circumstances obtain an order compelling the creditor to co-operate. His own duty to perform then of course remains, but the delay on his side does not constitute mora debitoris, being occasioned by the fault of the creditor. The debtor's duty of care in respect of the article to be delivered (where appropriate) is diminished. Once the creditor falls into mora, the debtor is liable only for dolus or culpa lata. Moreover, the principle of perpetuatio obligationis applies here in reverse: The creditor bears the risk of supervening impossibility of performance brought about fortuitously or by the debtor's culpa (provided such negligence is not gross, culpa lata).

In the case of a reciprocal contract, the debtor may, despite his own incomplete or non-performance, claim counter-performance by the other party, who cannot raise the exceptio non-adimpleti contractus, but the counter-performance is subject to reduction by the amount that the debtor saves by not fully performing on his side.

Mora creditoris releases sureties, but its effect on the existence of a mortgage, pledge or lien is uncertain. The effect on the debtor's duty to pay interest or other compensation for the use of a thing is also unclear.

Unless he cancels the contract, or obtains an order compelling the creditor to accept his performance, it is not clear how the debtor can discharge his debt without having to wait until the period of prescription has run, or until performance has become impossible. Consignation (payment into court with notice to the creditor) appears to have fallen into desuetude, and is in any event impossible or impracticable in many cases (as in the case where perishables are to be delivered). Whether the debtor may sell the goods for the account of the creditor is also uncertain.

The details, then, are the same, mutatis mutandis, as for mora debitoris, which is much more common. Mora creditoris is a very rare form of breach, its value inhering mostly in its conceptual reflection of its opposite.

Performance

As for what constitutes performance, the case of BK Tooling v Scope Precision Engineering,^[182] with its review of the principle of reciprocity and the exceptio non-adimpleti contractus, sets out several clear requirements:^[183]

In reciprocal contracts, a creditor has the right to receive full and complete performance. There must be strict compliance, in other words: 100 per cent performance. The principle of reciprocity recognises that in many contracts the common intention of the parties, expressed or unexpressed, is that there should be an exchange of performances. The creditor, therefore, may refuse any vaguely inappropriate performance. Part performance is not performance.

The strict legal position is that, if a builder, say, should complete only half the contracted construction, and then sue for payment, the other party is entitled to deploy the exceptio. Because part performance is not performance, no payment is owed. Importantly, though, the defendant only succeeds with the exceptio if the plaintiff's performance fell due prior to or simultaneously with the performance claimed from the defendant.

The courts reserve for themselves a discretion to depart from the strict legal position, and sometimes award reduced counterperformance to the plaintiff, in which case it is up to the debtor to prove what the reduced fee should be. (The usual test to subtract the cost of rectifying the problem or defect or shortcoming from the full fee.) Strict exceptio is only imposed if two requirements are met:

1. The creditor must not have used the incomplete performance. Mere accession to land, in the case of buildings, does not amount to utilisation. One has to move into a building for it to be considered utilised.
2. There must be no special equitable circumstances that exist. This is where the court exercises its discretion.

Performance may not be made in instalments unless such have explicitly been permitted or agreed upon by the parties; otherwise it must be made whole. Authority for this position goes as far back as Grotius, with his stipulation that performance be made in a lump.^[184]

The defaulting debtor may not elect to pay damages in lieu of performance, unless it is at the prerogative of the creditor. The law does not require that the creditor accept an offer to this effect; he is entitled to continue to demand performance.

No substitution is permitted: that is, no giving the creditor something else in lieu of performance. This is once more subject to the qualification that the parties may agree to the alternative, which is known formally as datio in solutum.

In summary, then, the requirements for performance are as follows:

• There must be strict compliance.
• Unless specifically agreed upon, performance may not be tendered in instalments.
• There is no election to pay damages in lieu of performance—unless this is agreed upon.
• Performance must be in forma specifica.
• There may be no substitution of performance unless the creditor accepts.

Payment

The basic requirements for performance in the form of monetary payment are to be found in the South African Reserve Bank Act,^[185][186] the most important of which is that it must be in the form of legal tender. This includes notes, coins and even krugerrands.

The Act also establishes limits on the volume of change or coinage that one may use. Provided that it is a reasonable amount, one may make payment in coins, but one may not meet huge sums, such as school fees, with coinage. The creditor is entitled not to accept that as viable tender.

With respect to inflation, the principle of nominalism applies: The courts do not make inflation adjustments. If, therefore, one owed R100 in 1990, it remains R100 today. The debtor should pay the amount specified in contract, though some contracts specifically factor in inflation, in which case it applies.

Similarly, the no-difference principle applies to foreign exchange: There are no currency conversions, so that what is claimed in one currency is owed in that currency.

Payment by cheque is allowed, but only once the bank has honoured it; if the cheque bounces, it is regarded as non-payment.

Nature

Although the definitions above are generally accepted, scholarly debate rages on as to the precise nature of release and waiver. According to Kerr, it is a unilateral juristic act. The power to release a debtor from his obligation rests entirely in the hands of the creditor, who need only say, 'I do not wish to avail myself of this right', in order to terminate it. SW van der Merwe and his co-authors, on the other hand, contend in Contract: General Principles that it is a liberatory agreement, i.e. a bilateral juristic act that is not a contract. RH Christie advocates a distinction according to circumstances. It is a:

• Contract (of donation) if it pertains to a right conferred by the contract
• Unilateral act if the right is conferred by law

Graham Glover calls for a different distinction:

• Release is an agreement between the parties to 'release' the debtor from having to perform.
• Waiver is a unilateral choice by the creditor to 'waive' a right.

Features

The core features of waiver (unilateral waiver especially) are set out in Alfred McAlpine & Son v Transvaal Provincial Administration.^[187] There is generally a presumption against waiver—it is assumed that one does not easily or arbitrarily waive one's rights or remedies or powers—so that the burden of proof is his who alleges it.^[188][189] The requirements for meeting this burden are carefully specified. Two questions should be asked, keeping in mind "the fact that persons do not as a rule lightly abandon their rights."^[188] The questions are these:

1. Was there an intention to waiver? The creditor must have had full knowledge of his rights in terms of the waived obligation.^[190][191]
2. Would a reasonable person in the circumstances believe the right to have been waived? This inquiry is important because a waiver need not expressly be made by the creditor; it may be "derived by implication from his conduct," in which case "his conduct must be such that it is necessarily inconsistent with an intention to maintain his rights."^[192][193] In other words, as De Villiers CJ put it in Smith v Momberg,^[194] "his conduct must be such as to leave no reasonable doubt in the mind that he not only knew what his rights were, but intended to surrender them."^[195]

Release and waiver can be either partial or complete. Release, however, usually entails the release of a debtor from the entire contract, whereas waiver is generally concerned only with one particular obligation or term of the contract.

Novatio voluntaria

Voet defines the former, voluntary novation, as 'a transformation and alteration of an earlier obligation, whether natural or civil, into another obligation whether natural or civil, when a fresh cause is created out of a foregoing cause in such wise that the earlier cause is destroyed'.^[197] In Swadif v Dyke,^[198] voluntary novation is described as 'essentially a matter of intention and consensus. When parties novate they intend to replace a valid contract by another valid contract'.^[199] This is novation in the strict and commonest sense: The parties novate the entire contract, but they retain their contractual relationship. Prescription ends when novation occurs.

Unless, as in the case of insurance agreements, it has been explicitly removed, the first contract can revive itself (residual position) if the second contract folds, as when voided for illegality. There is a presumption against novation, so that 'where there is doubt the court prefers not to imply a novation'.^[200] An important case in this regard is Electric Process Engraving and Stereo Co v Irwin:^[201]

The question is one of intention [.... I]n the absence of any express declaration of the parties, the intention to effect a novation cannot be held to exist except by way of necessary inference from all the circumstances of the case.^[202]

The second contract ‘...is much rather deemed to have been made in order to strengthen the first one, and for the purpose of being annexed to it, than for the purpose of extinguishing it'.^[203] Variation, in other words, is usually preferred to novation: It is generally assumed "that the parties intended only to modify, augment, or diminish the obligation, and not to extinguish the old debt, and substitute a new one, unless the contrary is particularly expressed".^[204]

Novatio necessaria

Compulsory novation, absolute in English law and much less common than voluntaria, takes place by operation of law, from 'judicial proceedings between parties whose rights and obligations are in issue between them'.^[205] Few judicial proceedings lead to novation; where they do, it is the damages awarded by the court that novate the contract.

It is important to note that 'compulsory novation does not release pledges or securities nor are sureties discharged; it does not interrupt the running of interest nor is mora purged'.^[206] This is 'because properly speaking, it is not a novation, but an additional confirmation or continuation of a previous obligation'.^[207]

Extinctive prescription

Extinctive prescription entails the termination of obligations, and therefore their enforceability, by lapse of time. This ensures finality in business affairs and provides an incentive for persons to enforce their rights when they become due. It is regulated by the Prescription Act^[216] and the Institution of Legal Proceedings Against Certain Organs of State Act.^[217] The former indicates that claims to a debt are restricted to a certain period of time, after which they fall away; one has to exercise one's rights within that period if one desires performance.^[218] This residual time amounts to three years,^[219] and prescription begins to run when "the debt falls due".^[220] Furthermore, "a debt shall not be deemed to be due until certain requirements are satisfied". These are, on the part of the creditor:

1. "Knowledge of the identity of the debtor"
2. "Knowledge of the facts from which the debt arose...provided the creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care".^[221]

Prescription is backdated accordingly, if necessary.

Gerike v Sack^[222] was a delict case. On 13 February 1971, Gerike was injured when Sack's motorboat crashed into her. Summons was only served on Sack on 14 February 1974. Gerike acknowledged that technically, under the Prescription Act,^[219] her claim had prescribed, but argued that in fact it had not, in terms of section 12(3), because she had only discovered the identity of motorboat driver some time later. The court disagreed, finding on the evidence that, instead of leaving everything to her husband, and thereby paying a purely passive role in the identification, she could herself have asked the one question required to establish Sacks's identity. She had not exercised 'reasonable care',^[221] in other words.

In Jacobs v Adonis,^[223] Jacobs was, in August 1988, a passenger in Adonis's vehicle when an accident occurred, rendering him paraplegic. He also suffered memory loss, such that he had no recollection of the incident. Adonis told Jacobs that his injuries had been sustained in a hit-and-run, so that there was no one to sue. Jacobs duly claimed compensation from the Road Accident Fund. Some time later, the discovery was made that it had in fact been Adonis who caused the accident. Jacobs accordingly sued him. Because he had had no knowledge of the debtor or of the true facts of the accident until these revelations, Jacobs's claim was well within the three-year period, and Adonis's defence of extinctive prescription could not stand.

The Prescription Act counters slow or busy courts with a provision to the effect that "the running of prescription shall be interrupted by the service on the debtor of any process whereby the creditor claims payment on the debt",^[224] on the grounds that it would be unfair to penalise someone for the tardiness of the administrative process. As soon as one serves a summons, therefore, prescription is interrupted.

Acquisitive prescription

Acquisitive prescription describes the acquisition of property, or rights of ownership, and therefore falls outside the scope of contract law.