Transfer and termination of contract

1. Transfer and termination of contract • Contracts usually temporary in nature • Reasons for termination: • Agreement • Cancellation • Set-off • Merger • Prescription • Impossibility of performance • Death or insolvency of a party (in certain situations)

2. Transfer Transfer of contractual rights and obligations • The general rule • Contractual rights: transferable assets (subject to limitations)  includes rights arising out of delict or unjustified enrichment • Example: transfer of contractual right to receive rental to the bank by a landlord in order to obtain a loan

3. Transfer Distinction between cession, delegation & assignment • Cession: a transfer where only rights are transferred • Delegation: a novation where obligations are transferred • Assignment: A novation where both rights and obligations are transferred • All three deal with substitution of a party by a third party Cession • Occurs where the holder of the right (the cedent) transfers the right to a third party (the cessionary) • No creation of a new contract: cessionary able to sue on the old contract and cedent loses the right to sue

4. Transfer Cession (CNTND) • Facilitates smooth running of business • Present and future rights are cedable(e.g future book debts) • May generally take place without formality or debtor’s consent • Common law and statutory exceptions Rights which cannot be ceded (statute): see pp 123-124

5. Transfer The effect of cession of rights • Cedent is stripped of the right to receive performance • Only the cessionary can enforce the right against the debtor and the debtor is obliged to perform • The debtor is entitled to raise defences against the cessionary which he may have raised against the cedent • Debtor’s unawareness of the cession • Cessionary make claim lost performance against the cedent on the basis of contract or unjustified enrichment • It is the cessionary’s duty to inform the debtor of the cession

6. Transfer Rights which cannot be ceded without the consent of the debtor • Rights of personal nature and where the debtor intends that such a right be exercised by the creditor personally e.g reduction of rental amount because the tenant is a personal friend to the landlord • Test to determine whether consent is required or not Likelihood that the identity of the creditor makes a reasonable or substantial difference to the debtor • If it does, consent is required • Outcome to depend on the facts

7. Transfer Rights which cannot be ceded without the consent of the debtor (CNTND) Some example: • An employer cannot cede the right to the employee’s services to the new owner of a business without the employee’s consent: Isaacson v Walsh & Walsh (1903) • Statutory exception in the Labour Relations Act: sale of a business as a going concern • Also not possible to cede a portion of the right to receive payment (may burden the debtor)

8. Transfer and termination of contract Delegation • Occurs where the debtor delegates his contractual obligation to a third party • Consent of the creditor is required • Debtor is excused from performing • But the debtor retains the right to receive performance from the creditor • However, the creditor can only expect performance of original debtor’s duties from the third party • It is a tripartite agreement (novation)

9. Transfer and termination of contract Assignment • Occurs when one party transfers his rights and duties under a contract to a third party • Common in contracts of lease (substitution of a tenant)  consent of a landlord required • Amounts to a novation

10. Termination of contract • Natural termination of contracts • Other ways (contractual termination): • Agreement • Cancellation • Death • Failure of creditor to perform reciprocal obligation • Insolvency • Merger • Novation • Prescription • Set-off • Supervening impossibility of performance

11. Termination of contract Termination by way of proper performance • Most contracts are terminated by reciprocal proper performance by the parties • Performance must not be defective

12. Termination of contract Some guidelines to determine whether or not performance is proper • The parties must perform properly and at the agreed place and time  Three aspects of the rule: parties; proper performance and agreed place and time >Identity of the parties: the issue is whether or not the parties are required to perform or receive performance personally  If it makes no difference, anyone may perform on behalf of the debtor  A party must perform personally if his identity is important because of his particular attributes or skills  Identity of the creditor: debtor must render performance to the creditor or competent agent

13. Termination of contract • The parties must perform properly and at the agreed place and time  Proper performance and in the agreed manner: > A creditor may refuse performance not in line with the agreement > May have recourse to ordinary contractual remedies > A party may also reject performance rendered outside the agreed time and place > If no agreement on the time of performance: debtor must perform within reasonable time > Debtor may be placed in mora if he fails to perform within reasonable time

14. Termination of contract • The parties must perform properly and at the agreed place and time  Proper performance and in the agreed manner: > Where performance is required within a specified period: debtor must seek out creditor & render performance > Where no agreement on the time: creditor is required to seek out the debtor to receive performance > Lack of agreement on the place for performance: General rule: if a demand is placed upon the debtor, he must perform to the creditor at the place where the creditor is at that specific time

15. Termination of contract Proper performance: payment in cash and payment in cheque • Where performance entails payment of money: General: must be in cash • Definition of legal tender in terms of the SA Reserve Bank Act: notes & coins lawfully in circulation • The Act limits the amount of coins which constitute legal tender (see p 127) • Creditor not in breach for refusing to accept coins in excess of specified amounts • Term often implied in contracts: payment may be by cheque (creditor must abide by this) • Courts quick to conclude that use of cheque is authorised

16. Termination of contract Proper performance: payment in cash and payment in cheque (CNTND) • Some relevant factors in deciding whether use of cheques is authorised:  past practice of the creditor in accepting cheques or the acceptance of a cheque as a deposit • Payment made by cheque: performance is said to be conditional on the bank honouring the cheque • Debt suspended until the cheque is presented to the bank for payment • Debt discharged upon the bank honouring the cheque

17. Termination of contract Proper performance: payment in cash and payment in cheque (CNTND) • Loss of a cheque by the creditor:  creditor looses out if cheque is lost and the bank pays out the cheque in legitimate circumstances  the debt is considered to be extinguished  the creditor is still entitled to pursue the debtor if the bank was not entitled to pay the cheque • Use of postal system to effect payment:  debtor usually bears the risk of loss or theft before payment reaches the creditor  BUT creditor looses out if post was used upon his request and payment posted correctly

18. Termination of contract Waiver, novation and compromise • Waiver:  occurs when one or both parties agree to abandon their rights in terms of the contract  only effective if a party is fully aware of the extent of the right being waived • Novation:  occurs when the parties agree on new contract altogether which will replace the old one  may involve substitution of a party  intention of the parties crucial

19. Termination of contract • A compromise:  A form of novation  occurs when there is a dispute between the parties concerning their contractual obligations  takes place when parties reach a settlement agreement regarding their contractual obligations Cancellation: p 129

20. Termination of contract Death • Death will not terminate the contract • Exception: contracts of a personal nature • Rights and duties of deceased to pass to the executor of the estate Insolvency • Does not terminate contractual rights and duties • Rights & duties are first assigned to the Master of High Court and eventually to the Trustee appointed by the HC

21. Termination of contract Merger • Occurs when the creditor and the debtor become one • Effect: creditor and debtor become one entity  results in the extinction of contractual obligations which existed between what were once two parties Prescription • Debt is extinguished after a prescribed lapse of time • May be raised as a defence by the debtor • Regulated by the Prescription Act 68 of 1969 • Prescription periods: p 129 • Goes beyond debts sound in money to include obligations not to or to do something

22. Termination of contract Prescription (CNTND) • Begins to run as soon as the debt is due • Factors which will delay the completion of prescription: p130 • Prescription will continue to run but may be extended by a period of one year after the day on which the impediment has ceased to exist • BUT prescription period need not be extended if more than a year of the prescribed period still remains after the impediment has ceased to exist

23. Termination of contract Prescription (CNTND) • If prescription period would be completed before or within one year after the day on which the impediment ceased to exist, prescription period will be extended to a year after the day on which the impediment ceased to exist • Reciprocal duties: earlier debt shall not prescribe before the reciprocal debt becomes prescribed • Factors which interrupts running of prescription:  express or tacit acknowledgement of liability by the debtor > prescription to run afresh from the day of acknowledgment  also interrupted by any service on the debtor of any process commencing legal action by the creditor claiming payment

24. Termination of contract Prescription (CNTND) • Abandonment of claim or unsuccessful court action: • Prescription to be treated as if it were not interrupted • Successful court action: • Prescription starts to run afresh on the day on which the judgment is enforceable Set-off • Occurs when the parties are indebted to each other and the debts are due and liquidated • If amounts are equal: automatic extinction of both debts • One amount larger than the other: the lesser debt is extinguished and greater amount reduced proportionately • Underlying contract terminates upon set-off

25. Termination of contract Set-off (CNTND) Requirements for set-off to operate: • Parties must be indebted to each other in the same capacities • Both debts must be due and payable • The debts must be of the same type and liquidated • Type of debt: both debts will usually be monetary • Liquidated: monetary value of the debt must be certain Supervening impossibility of performance ( pp 131-132)