Loan of Consumption

 Elements:
1. Loan of Consumption (Mutuum): This is a contractual
arrangement where the lender transfers ownership of a
consumable item to the borrower. Consumable items include
money, food, fuel, and any goods that can be used up or
depleted through consumption. The transfer of ownership
distinguishes it from other loan types.
2. Obligation of the Borrower: The borrower is required to
return an equivalent amount of the same type, quality, and
quantity as the item borrowed. For instance, if a borrower
takes out a loan of R1,000, they must repay R1,000, but not
necessarily the same banknotes or coins.
3. Difference from Loans for Use (Commodatum): Unlike a loan
of consumption, where ownership is transferred, a loan for
use requires the borrower to return the exact item received
after use. This distinction is crucial in understanding the
rights and obligations of both parties.
 Duties of the Borrower:
1. Return of Equivalent: The borrower must return an
equivalent item, meaning they should ensure that the item
returned matches the quantity and quality of what was
borrowed. For example, if they borrowed 100 liters of fuel,
they must return 100 liters of the same fuel type.
2. Compensation for Damages or Loss: If the borrower fails to
return the equivalent item, they are liable to compensate
the lender for any damages or losses incurred. This
compensation is typically monetary and must reflect the
value of the lost item.
3. Adherence to Agreement Terms: The borrower must comply
with the terms outlined in the loan agreement, including the
timeline for repayment and any conditions regarding the
use of the borrowed item. Failure to adhere to these terms
may result in additional liabilities, such as late fees or
penalties.
 Interest Rate, Usury, and In Duplum Rule:
1. Interest Rate: In monetary loans, the lender may charge
interest, but this must comply with the National Credit Act
(NCA), which regulates interest rates to prevent excessive
charges. The agreed interest rate must be clearly stated in
the credit agreement.
2. Usury Laws: The Usury Act 73 of 1968 historically capped
interest rates on loans to protect borrowers from
exploitative practices. Although this Act has been repealed,
 its principles are echoed in the NCA, which provides
updated regulations for interest rates and fees.
3. In Duplum Rule: This common law rule states that interest
on a debt cannot exceed the principal amount owed. This
means that once the interest accrued equals the principal,
no further interest can be charged. This rule protects
consumers from excessive debt accumulation due to high-
interest rates.

Regulation of Credit Industry

 Purposes, Interpretation, and Application of NCA:
1. The NCA was enacted to tackle critical issues within the
credit industry, including reckless lending, over-
indebtedness, and predatory lending practices. It aims to
foster a fair and transparent credit environment that
prioritizes consumer protection.
2. The Act mandates that credit providers conduct thorough
assessments to ensure that borrowers are capable of
fulfilling their repayment obligations, thereby reducing the
likelihood of over-indebtedness.
3. The NCA applies to credit agreements made at arm’s length
in South Africa, meaning agreements made between
independent parties without undue influence. However, it
does not apply to:
 Agreements involving the state or its organs.
 Credit agreements made by the South African Reserve
Bank (SARB).
 Agreements executed outside South Africa.
4. Small businesses (turnover below R1,000,000) are afforded
certain protections under the NCA, unlike larger entities,
which are generally excluded from its provisions.
 Regulatory Bodies and Industry Participants:
1. National Credit Regulator (NCR): The NCR oversees the
implementation of the NCA, ensuring compliance among
credit providers. It monitors industry trends, conducts
investigations, and enforces regulations against violators.
2. National Consumer Tribunal: This tribunal resolves disputes
between consumers and credit providers, especially cases
involving reckless lending. It has the authority to impose
penalties and void unlawful credit agreements.
 3. Industry Participants: Key players include banks, micro-
lenders, retailers providing credit, debt counselors, and
credit bureaux. All credit providers must register with the
NCR and comply with the NCA’s provisions, including
affordability assessments.
 Meaning and Various Types of Credit Agreement:
1. Credit Facility: A setup that allows consumers to defer
payment for goods or services, such as credit cards, store
accounts, and overdraft facilities, enabling consumers to
purchase and pay later, often with interest.
2. Credit Transaction: Encompasses any transaction deferring
payment. This includes hire purchase agreements (where
ownership transfers after the final payment), pawn
transactions (where goods are collateral for a loan), and
secured loans.
3. Credit Guarantee: Involves a third party agreeing to pay the
debt if the primary borrower defaults. This is often found in
suretyship agreements.
4. Incidental Credit Agreement: Arises when consumers can
pay for goods or services later, with interest charged only
on overdue payments, such as municipal bills with late fees.

Formation of Credit Agreement

 Consumer’s Right to Reasons:
1. Consumers can request explanations for decisions made by
credit providers regarding their credit applications. This
includes denials, lower credit limits, or refusals to increase
credit. Such transparency is vital for consumer awareness
and protection.
 Pre-contractual Assessment:
1. Reckless Credit Agreement: Credit providers must conduct a
thorough affordability assessment before extending credit.
This involves evaluating the consumer's income, expenses,
and existing debts. Failure to conduct this assessment can
lead to the agreement being classified as reckless.
2. Over-indebtedness: If a consumer is over-indebted, meaning
they cannot meet their debt obligations, the NCA provides
remedies such as debt review. Credit providers may face
penalties for granting reckless credit.
 Prohibited Marketing Practices:
1. Negative Option Marketing: Credit providers cannot engage
in practices where consumers are automatically bound by
 agreements unless they opt out. All credit agreements must
require explicit consent from the consumer.
2. Harassment: Aggressive marketing tactics that pressure
consumers into taking credit are prohibited. Credit
providers must respect consumer autonomy and avoid
coercive practices.
 Unlawful Credit Agreements & Provisions:
1. Agreements can be declared unlawful if entered into with
individuals such as:
 Minors or individuals lacking legal capacity.
 Those declared mentally unfit or under an
administration order.
 Agreements with unregistered or prohibited credit
providers.
2. Provisions within agreements that limit consumer rights or
impose illegal fees are unenforceable and may result in the
entire agreement being void.
 Consumer’s Liability for Interest, Fees & Charges:
1. Consumers are responsible for repaying the principal debt
and any agreed-upon interest, fees, or charges, including
initiation and service fees.
2. The NCA enforces caps on interest rates and fees to protect
consumers from being charged excessive costs. Credit
providers must disclose all charges clearly before the
agreement is signed.

Operation and Termination of Credit Agreement

 Lost Cards and PINs:
1. Consumers must safeguard their credit cards and PINs. In
case of loss or theft, they must notify the credit provider
immediately to limit their liability for unauthorized
transactions. Failure to report may result in the consumer
being held liable for all losses incurred until notification.
 Consumer’s Right to Pay Early:
1. Consumers have the right to repay their debts early without
incurring penalties. The lender must accept early
repayments, allowing consumers to reduce their debt
burden and avoid additional interest charges.
 Alteration of Credit Limit:
 1. Credit providers can adjust the credit limits on consumer
accounts but must inform consumers of any changes. For
example, if a bank raises a credit limit, it is obligated to
notify the consumer of the new terms.
 Termination of Agreement by Surrendering Goods:
1. Consumers can terminate certain agreements, like hire
purchases, by surrendering the goods. Upon surrender, the
credit provider must sell the goods to recover the
outstanding debt.
2. If the sale of the goods does not cover the total debt, the
consumer remains liable for the shortfall. Conversely, if the
sale exceeds the debt amount, the consumer is entitled to
receive the surplus.
Enforcement & Defenses
Credit Provider’s Enforcement Rights and Duties:

Enforcement Rights: Credit providers can enforce agreements when

consumers default on payments. This can involve repossessing goods
that were financed through credit agreements, initiating legal
proceedings to recover debts, or garnishing wages in severe cases.
However, they must adhere to procedural fairness and notify consumers
of their defaults.
Duties During Enforcement: Credit providers are obligated to inform
consumers about defaults and provide them with reasonable
opportunities to remedy the situation before taking further
enforcement actions. They must comply with regulations set out in the
NCA, ensuring fair treatment of consumers during the debt collection
process.
Defenses: Debt Review and Reckless Credit:

Debt Review: Consumers who are over-indebted may apply for debt
review. This legal process allows them to have their debts restructured
to create a manageable repayment plan. During the debt review, credit
providers cannot enforce any agreements, offering consumers a
temporary reprieve to stabilize their finances.
The process involves an assessment of the consumer’s financial
situation, including income, expenses, and outstanding debts. A debt
counselor assists in negotiating with creditors to reach an agreeable
repayment arrangement.
If a consumer is successfully placed under debt review, the court may
issue an order confirming this status, which must be adhered to by all
creditors involved.
Reckless Credit Defense: Consumers can assert that a credit agreement
is reckless if the lender did not conduct a proper affordability
assessment before extending credit. If a court finds that the credit
provider engaged in reckless lending, the credit agreement may be
rendered void or subject to alteration.
The consumer may also seek to have any interest or fees that arose
during the period of recklessness reversed, which protects them from
exploitative terms and ensures responsible lending practices.
General Defenses Against Enforcement:

Unlawful Credit Agreements: Consumers can defend against

enforcement actions by arguing that the credit agreement is unlawful.
If the agreement was entered into with a minor, mentally unfit
individual, or was not compliant with the NCA, it may be declared void.
Misrepresentation or Fraud: If a consumer can demonstrate that they
were misled or deceived about the terms of the credit agreement—
whether by false information or coercive sales tactics—they may have a
strong defense against enforcement.
Breach of Contract: If the credit provider fails to adhere to their own
obligations within the agreement, consumers can argue that the credit
provider has breached the contract, which can serve as a defense in
enforcement actions.

PROPERTY LAW
1. Detailed Aspects of Ownership Rights
 "Bundle of Rights" Concept: Ownership isn’t a single right but a bundle
that includes use, enjoyment, and disposal. When broken down, these
rights form entitlements, and when others hold some of these rights, they
become limited real rights.
 Entitlements of Ownership:
o Possession: Right to physically control the property.

o Use: Right to derive benefit from the property.

o Fruits and Income: Right to enjoy fruits (e.g., produce, rent) of the
property.
o Alienation: Right to transfer ownership to others.

o Hypothecation: Right to pledge property as security (e.g.,

mortgage).
 Limitations on Ownership: Ownership isn’t absolute. It can be limited
by:
 o Common Law Restrictions: Protect the interests of neighbors and
the public (e.g., preventing nuisances).
o Statutory Regulations: Include zoning laws, environmental
restrictions, and building codes.
2. In-Depth Look at Sectional Title Schemes
 Legal Framework: The Sectional Titles Act 95 of 1986 facilitates
ownership of individual sections (e.g., apartments) within a larger property
while sharing ownership in common areas.
 Common Property vs. Exclusive Use Areas:
o Common Property: Shared areas accessible to all owners, like
stairways, lobbies, and grounds.
o Exclusive Use Areas: Specific parts of common property
designated for a single owner’s use, such as a balcony or parking
bay.
 Participation Quota: Each owner’s share in common property is based
on the size of their section relative to the total building area. This quota
also influences voting rights and liability for shared expenses.
 Body Corporate Powers: The Body Corporate is crucial in managing and
maintaining common property. Its responsibilities include:
o Enforcing conduct and management rules.

o Collecting levies for maintenance and administrative expenses.

o Entering contracts (e.g., for insurance, repairs).

3. Servitudes: Personal vs. Praedial

 Personal Servitudes: Limited to the servitude holder’s lifespan (e.g.,
usufruct). Commonly used to allow someone to live in or use property
without transferring ownership.
 Praedial Servitudes: Tied to the land itself, attaching to the “dominant
tenement” (benefitting land) and affecting the “servient tenement”
(burdened land). Key characteristics:
o They transfer automatically with land ownership.

o Include rights like right of way or water access.

 Creation and Termination:

o Methods of Creation: Servitudes can be created through a
notarial deed, prescription, or court order. They may also arise
automatically when townships are established, with restrictive
covenants.
o Termination: They can end through agreement, merger (when one
owner acquires both dominant and servient lands), or
abandonment.
4. Acquisition Methods: Original vs. Derivative
 Original Acquisition:
o Accession: If an accessory item becomes inseparable from the
principal, the accessory’s ownership merges with the principal
owner’s rights. For instance, when buildings are constructed on
land, the landowner gains ownership of the structures.
o Specification: Creating something new from raw materials,
typically involving skill or labor, grants ownership to the maker
unless otherwise contracted.
o Prescription: Continuous, uninterrupted possession for a set period
confers ownership, intended to reflect social stability and certainty
in ownership.
 Derivative Acquisition:
o In derivative transfers, ownership passes through mutual intent
and compliance with legal processes, such as registration for
immovables or delivery for movables.
o Causal Theory vs. Abstract Theory:

 Causal Theory: Ownership transfer is valid only if the

underlying contract (e.g., sale agreement) is valid.
 Abstract Theory: Ownership transfer can occur regardless
of the underlying contract’s validity, focusing on the parties’
intent to transfer ownership.
5. Modes of Delivery for Movables
 Different delivery methods reflect practicality and convenience, especially
when physical transfer is impractical:
o Physical Delivery: Direct handover, common for smaller items.

o Symbolic Delivery: Transfer through a representative object, like

keys or a bill of lading.
o Constructive Delivery Variants:

 Longa Manu: Transferor points out a large or immovable

item.
 Brevi Manu: Transferee already has possession; ownership is
transferred through mutual intent.
 Constitutum Possessorium: Transferor retains possession
but acknowledges that ownership has transferred to the
transferee.
 Attornment: Third-party possession (e.g., goods held in
storage) shifts to the new owner upon all parties’ agreement.
6. Public Property and Expropriation
  Public Property: Certain resources are generally not subject to
ownership (e.g., oceans, air), while some state-held property is for public
enjoyment (e.g., roads, beaches).
 Expropriation: Enabled by the constitution, allowing state acquisition of
private property for public benefit with fair compensation. Expropriation
respects private ownership but aligns with broader public or infrastructural
needs.

REAL AND PERSONAL SECURITY

1. The Purpose, Accessory Nature, and Scope of Security
1.1 Purpose of Security
 The main purpose of security is to protect creditors from the risk
of non-performance by the debtor. By creating a legal mechanism,
creditors can enforce repayment by claiming or liquidating the
debtor's assets.
 Without security, creditors rank equally with other unsecured
creditors in insolvency scenarios, jeopardizing their ability to
recover debts.
1.2 Accessory Nature of Security
 Principle: Security rights are accessory to a principal obligation,
meaning they only hold value as long as the underlying obligation
exists. If the principal obligation is void or extinguished, the
security lapses automatically.
 Relevant Cases:
o Panamo Properties v Land & Agricultural Development Bank
2015 (SCA): The court reaffirmed that the mortgage bond's
validity depended on the principal obligation. Since the loan
agreement was invalid, the mortgage could not stand.
o Tattersall v Nedcor Bank 1995 (A): The court ruled that once
the principal debt was extinguished due to an agreement
between the creditor and debtor, the accessory suretyship
could not be enforced.
1.3 Scope of Security
 Security can encompass movable and immovable property, as well
as intangible rights such as shares and intellectual property. It
can be created through various instruments, including mortgage
bonds, pledges, notarial bonds, and cession agreements.
2. Real Security
 Real security involves the debtor granting rights in property to
the creditor, creating a real right enforceable against third
parties.
2.1 Types of Real Security
1. Mortgage Bond:
o A mortgage bond is a security interest over immovable
property, granting the creditor a preferential right to sell if
the debtor defaults.
o Relevant Case: Bokomo v Standard Bank van SA Bpk 1996
(C): The court upheld the real right granted by a mortgage
bond, confirming its enforceability against other creditors.
2. Pledge:
o Involves transferring possession of a movable asset to the
creditor as security. Ownership remains with the debtor, but
possession is key.
o Relevant Case: Bock v Duburoro Investments (Pty) Ltd 2002
(SCA): The court emphasized that valid delivery of a pledged
asset requires possession by the creditor.
3. Notarial Bond Over Movables:
o A registered bond allowing the debtor to retain possession
while creating a security right.
o Relevant Case: Farmsecure Grains v Du Toit 2013 (FB): The
importance of registration for establishing real rights was
underscored; without it, creditors only have personal rights.
4. Cession in Securitatem Debiti:
o The transfer of personal rights to the creditor as security.

o Relevant Case: Ikea Trading und Design AG v BOE Bank Ltd

2005 (SCA): The court confirmed that the cession effectively
transferred rights to the creditor until the debt was paid.
2.2 Juristic Nature of Real Security
 Real security provides an enforceable real right over property,
prioritizing creditors over unsecured ones and being effective
against third parties.
2.3 Requirements for a Valid Security Interest
 For validity, a security interest must:
1. Obtain consent from all parties.
2. Be identifiable and capable of being secured.
3. Be underpinned by a valid principal obligation.
4. Fulfill formalities (e.g., registration for a mortgage bond).
2.4 Rights Conferred by Real Security
  Creditors gain rights to:
o Retain possession (e.g., pledge).

o Sell secured property upon default.

o Enjoy priority in insolvency situations.

3. Personal Security (Suretyship)

 A third party (surety) agrees to be liable for the principal debtor's
debt upon non-performance. This agreement imposes personal
obligations on the surety.
3.1 Juristic Nature of Personal Security
 Suretyship is an accessory agreement, dependent on a valid
principal obligation's existence.
 Principle: A surety can only be claimed against after the principal
debtor's default, with creditors required to first pursue the
debtor.
3.2 Requirements for Valid Suretyship
 Must comply with:
1. Written form (per General Law Amendment Act).
2. Valid principal debt.
3. Clear intention from the surety.
 Relevant Case: Contract Forwarding (Pty) Ltd v Chesterfin (Pty)
Ltd 2003 (SCA): The court emphasized that only written
suretyship agreements are enforceable.
3.3 Liability of the Surety
 The surety's liability is contingent upon the debtor's default,
governed by the suretyship agreement's terms.
 Relevant Case: Nedbank v Van Zyl 1990 (A): Confirmed that the
creditor must prove the principal debtor's default before pursuing
the surety.
3.4 Defenses of the Surety
 The surety may claim defenses such as:
1. Extinction of the principal debt.
2. Creditor misconduct (e.g., bad faith).
3. Changes to principal debt terms without consent.
 Relevant Case: National Bank v Cohen’s Trustees 1911 AD:
Material changes to the principal debt without the surety's
consent discharge the surety from liability.
3.5 Rights of the Surety
 Rights include:
1. Recourse against the principal debtor.
2. Benefit of excussion (creditor must exhaust remedies
against the principal first).
 Relevant Case: Jans v Nedcor Bank 2003 (SCA): Affirmed the
surety’s right to recover payments made on behalf of the
principal debtor.
3.6 Discharge of Surety
 A surety may be discharged by:
1. Extinction of the principal debt.
2. Creditor’s release of the surety.
3. Alteration of principal obligation without consent.
 Relevant Case: Grobler v Oosthuizen 2009 (SCA): The court found
that altering debt terms without informing the surety can release
them from liability.
4. Security Arising by Operation of Law
 Security can automatically arise due to legal relationships without
formal agreements.
4.1 Juristic Nature of Security by Operation of Law
 Created by law, such as liens or tacit hypothecs, recognized due
to specific facts or relationships, like possession or services
rendered.
4.2 Types of Security by Operation of Law
1. Lien:
o A right to retain possession of another's property until a
debt is satisfied.
o Relevant Case: Davids v ABSA Bank 2005 (C): The court
ruled a lien valid, allowing retention of property until
payment.
2. Landlord’s Tacit Hypothec:
o A landlord’s right over a tenant’s movable property for
unpaid rent.
o Relevant Case: Fedbond Nominees v Meier 2008 (C): The
court confirmed the landlord's right to attach and sell
tenant property for unpaid rent.
4.3 Requirements for Security to Arise by Operation of Law
  Generally includes:
1. Possession of the property.
2. Recognition of a security right due to the facts (e.g., unpaid
rent).
3. A valid claim from the creditor.
4.4 Rights Conferred by Security by Operation of Law
 Rights include:
1. Retaining possession until the debt is satisfied.
2. Applying for the property’s sale to recover the debt.
3. Enjoying priority over other creditors.
CASE LAW
Panamo Properties v Land & Agricultural Development Bank 2015 (SCA)
 Relevant Topic: Mortgage Bond Validity
 Principle: The validity of a mortgage bond depends on the
existence of a valid principal obligation.
 Court Ruling: The court held the mortgage bond invalid due to the
invalid loan agreement.
Tattersall v Nedcor Bank 1995 (A)
 Relevant Topic: Accessory Nature of Security
 Principle: Security is accessory to a principal obligation and
ceases with it.
 Court Ruling: The suretyship was unenforceable after the
principal obligation was extinguished.
Bonheur 76 General Trading v Caribbean Estates 2010 (GSJ)
 Relevant Topic: Cession in Securitatem Debiti
 Principle: A valid cession requires clear intention and proper
execution.
 Court Ruling: The cession was found to be valid, transferring
rights to the creditor.
Bock v Duburoro Investments (Pty) Ltd 2002 (SCA)
 Relevant Topic: Pledge
 Principle: Valid delivery of a pledged asset requires possession by
the creditor.
 Court Ruling: The court emphasized the need for physical
possession for a valid pledge.
Bokomo v Standard Bank van SA Bpk 1996 (C)
 Relevant Topic: Mortgage Rights
 Principle: Real rights conferred by a mortgage bond are
enforceable against third parties.
 Court Ruling: The court upheld the mortgage bond, granting
rights to the creditor.
Farmsecure Grains v Du Toit 2013 (FB)
 Relevant Topic: Notarial Bonds
 Principle: Registration of a notarial bond is necessary to establish
real rights.
 Court Ruling: The court ruled that without registration, creditors
only have personal rights.
Ikea Trading und Design AG v BOE Bank Ltd 2005 (SCA)
 Relevant Topic: Cession Rights
 Principle: A cession effectively transfers rights as security for a
debt.
 Court Ruling: The court confirmed the validity of the cession until
the debt was paid.
Contract Forwarding (Pty) Ltd v Chesterfin (Pty) Ltd 2003 (SCA)
 Relevant Topic: Suretyship Agreements
 Principle: Written agreements are necessary for enforceability of
suretyships.
 Court Ruling: The court ruled the suretyship agreement was
invalid due to lack of written form.
National Bank v Cohen’s Trustees 1911 AD
 Relevant Topic: Suretyship Defenses
 Principle: Changes to the principal obligation without consent
discharge the surety.
 Court Ruling: The court found that the surety was released from
liability due to changes made without consent.
Aussenkehr Farms (Pty) Ltd v Trio Transport CC 2002 (SCA)
 Relevant Topic: Suretyship
 Principle: Sureties must be pursued only after the principal
debtor's default.
 Court Ruling: The court ruled that the creditor must exhaust
remedies against the principal debtor first.
Grobler v Oosthuizen 2009 (SCA)
 Relevant Topic: Discharge of Surety
 Principle: Surety may be discharged by changes to the principal
debt.
 Court Ruling: The court confirmed that alterations without
informing the surety release them from liability.
Roomer v Wedge Steel (Pty) Ltd 1998 (N)
 Relevant Topic: Lien
 Principle: The right to retain possession of another's property
until a debt is satisfied.
 Court Ruling: The court upheld the lien, confirming the right to
retain until payment.
Davids v ABSA Bank 2005 (C)
 Relevant Topic: Landlord’s Tacit Hypothec
 Principle: Landlords have a right over a tenant’s property for
unpaid rent.
 Court Ruling: The court confirmed the landlord's right to attach
and sell tenant property for unpaid rent.
Manufacturers Development Co v Repcar Holdings 1975 (W)
 Relevant Topic: Accessory Nature of Security
 Principle: Security is accessory and dependent on the principal
obligation.
 Court Ruling: The court ruled that the security lapsed with the
termination of the principal debt.
Industrial Development Corporation v See Bee Holdings 1978 (C)
 Relevant Topic: Real Security
 Principle: Creditors gain rights to enforce real security interests.
 Court Ruling: The court affirmed the creditor's rights over the
secured property.
Nedbank v Van Zyl 1990 (A)
 Relevant Topic: Suretyship
 Principle: A surety's liability is contingent upon the principal
debtor's default.
 Court Ruling: The court confirmed that the creditor must prove
the debtor's default before claiming against the surety.
Standard Bank v Lombard 1977 (W)
  Relevant Topic: Real Security
 Principle: Real rights from a mortgage or pledge can be enforced
against third parties.
 Court Ruling: The court upheld the validity of the mortgage bond
against competing claims.
Du Toit v Barclays Nasionale Bank 1985 (A)
 Relevant Topic: Cession
 Principle: Cession of rights must be in writing to be enforceable.
 Court Ruling: The court held the oral cession unenforceable and
ruled in favor of the creditor.
Sassoon Confirming & Acceptance Co v Barclays National Bank 1974 (A)
 Relevant Topic: Pledge
 Principle: Delivery is essential for the validity of a pledge.
 Court Ruling: The court confirmed that without delivery, the
pledge was void.
Hutchinson v Hylton Holdings & another 1993 (T)
 Relevant Topic: Real Security
 Principle: Rights arising from a mortgage bond are enforceable
against successors.
 Court Ruling: The court ruled that the mortgage bond remained
enforceable against new property owners.
Solomon NO v Spur Cool Corporation 2002 (C)
 Relevant Topic: Suretyship
 Principle: A surety's obligation can only be enforced after
exhausting remedies against the principal.
 Court Ruling: The court upheld the principle of excussion, ruling
that creditors must pursue the debtor first.
Fedbond Nominees v Meier 2008 (C)
 Relevant Topic: Landlord’s Tacit Hypothec
 Principle: Landlords may attach tenant property for unpaid debts.
 Court Ruling: The court confirmed the validity of the landlord's
tacit hypothec rights.
SA Breweries Ltd v Van Zyl 2006 (SCA)
 Relevant Topic: Real Security
 Principle: Creditors retain priority over secured property in
insolvency.
  Court Ruling: The court ruled in favor of the creditor’s real rights
in insolvency proceedings.
Ideal Finance Corporation v Coetzer 1970 (A)
 Relevant Topic: Suretyship
 Principle: The creditor must fulfill formalities for enforceability of
suretyship.
 Court Ruling: The court upheld that lack of formalities rendered
the suretyship unenforceable.
Worthington v Wison 1918 TPD
 Relevant Topic: Lien
 Principle: A lien arises from possession and provides a right to
retain property.
 Court Ruling: The court confirmed the creditor's right to retain the
property until the debt was paid.
Gaba v Ordra Trust and Investments 1954 (T)
 Relevant Topic: Real Security
 Principle: Creditors may recover through real security interests.
 Court Ruling: The court ruled in favor of the creditor's real rights
over the secured property.
Barnard v Laas 1929 (T)
 Relevant Topic: Suretyship
 Principle: Sureties can assert defenses based on lack of
consideration.
 Court Ruling: The court ruled the surety was not liable due to
insufficient consideration.
Douglas C Wylde & Co v Burger 1970 (E)
 Relevant Topic: Accessory Nature of Security
 Principle: The security lapsed with the termination of the principal
obligation.
 Court Ruling: The court held that the security could not be
enforced once the principal obligation ceased.
Strachan v Fawcett 1933 (N)
 Relevant Topic: Cession
 Principle: Cessions must be properly executed to be enforceable.
 Court Ruling: The court ruled the cession was invalid due to
improper execution.
ASA Investments v Smit 1980 (C)
 Relevant Topic: Real Security
 Principle: Creditors gain enforceable rights upon proper
registration.
 Court Ruling: The court confirmed that registration of a bond was
necessary for its validity.
Gerber v Wolson 1955 (A)
 Relevant Topic: Suretyship
 Principle: A surety may raise defenses based on changes to the
principal obligation.
 Court Ruling: The court ruled in favor of the surety, citing that the
principal's obligation had changed.
Jans v Nedcor Bank 2003 (SCA)
 Relevant Topic: Suretyship
 Principle: The surety has the right to recourse against the
principal debtor.
 Court Ruling: The court upheld the surety's right to seek
repayment after fulfilling the obligation.
Kalil v Standard Bank 1967 (A)
 Relevant Topic: Real Security
 Principle: Real security interests must be clearly defined and
identifiable.
 Court Ruling: The court ruled that vague descriptions in security
agreements are invalid.
Tsaperas v Boland Bank 1996 (A)
 Relevant Topic: Cession
 Principle: A valid cession can occur without the creditor’s
consent.
 Court Ruling: The court confirmed that the debtor can cede rights
without the creditor's approval.
Standard Bank v Lewis 1922 (T)
 Relevant Topic: Suretyship
 Principle: A surety's obligations are dependent on the principal
debtor's obligations.
 Court Ruling: The court ruled the surety's obligation was valid
only if the principal's was enforceable.
ABSA Bank t/a Volkskas Bank v Page 2002 (SCA)
 Relevant Topic: Suretyship
 Principle: Sureties are bound to fulfill obligations unless revoked.
 Court Ruling: The court upheld the enforceability of the surety
agreement.
Standard Bank v Cohen 1993 (EC)
 Relevant Topic: Real Security
 Principle: A creditor's rights are enforceable upon default of the
principal debtor.
 Court Ruling: The court ruled the creditor could enforce the
mortgage upon default.
ABSA Bank v Davidson 2000 (SCA)
 Relevant Topic: Suretyship
 Principle: Surety obligations must be clear and unequivocal.
 Court Ruling: The court found the surety agreement vague and
unenforceable.
Bock v Duburoro Investments 2004 (SCA)
 Relevant Topic: Pledge
 Principle: Valid delivery is essential for the enforceability of a
pledge.
 Court Ruling: The court emphasized the importance of possession
in validating a pledge.
De Aguiar v Real People Housing 2011 (SCA)
 Relevant Topic: Real Security
 Principle: Real security must adhere to statutory requirements for
validity.
 Court Ruling: The court ruled that failure to meet requirements
rendered the security void.
Scholtz v Faifer 1910 (T)
 Relevant Topic: Real Security
 Principle: Creditors retain rights to enforce real security interests
against debtors.
 Court Ruling: The court upheld the creditor's right to enforce the
mortgage despite debtor's claims.
Marinus v Taljaard 1952 (C)
 Relevant Topic: Lien
  Principle: A lien is valid where possession is retained until the
debt is satisfied.
 Court Ruling: The court confirmed the creditor’s right to retain
property under lien until payment.
Hamilton Paneelkloppers v Nkomo 1991 (O)
 Relevant Topic: Suretyship
 Principle: Suretyship requires clarity and agreement from all
parties involved.
 Court Ruling: The court ruled in favor of the surety, noting
ambiguity in the agreement.
Singh v Santam Insurance 1997 (A)
 Relevant Topic: Suretyship
 Principle: A surety may challenge the creditor’s claims based on
prior conduct.
 Court Ruling: The court upheld the surety's defense based on the
creditor's misconduct.
Sandton Square Finance v Viliotti 1997 (W)
 Relevant Topic: Real Security
 Principle: Real rights arise from enforceable security interests
created by formal agreements.
 Court Ruling: The court ruled in favor of the creditor, affirming
their real rights.
Bloemfontein Municipality v Jacksons Ltd 1929 (A)
 Relevant Topic: Lien
 Principle: A lien is enforceable if possession is maintained.
 Court Ruling: The court confirmed the municipality's right to
enforce the lien until payment.
Paradise Lost Properties v Standard Bank 1998 (N)
 Relevant Topic: Mortgage Rights
 Principle: The mortgagee's rights are enforceable upon default.
 Court Ruling: The court ruled that the bank could enforce the
mortgage after the debtor's default.
SEQUESTRATION AND ITS CONSEQUENCES
Basic Principles and Concepts
1.1 Equal Treatment of Creditors (Concursus Creditorium)
 Concursus Creditorium: Once sequestration is granted, all
creditors of the debtor must collectively pursue their claims
against the estate through the sequestration process. This
ensures that no creditor is favored over another.
 Group vs. Individual Claims: Sequestration stops individual
creditors from seizing assets or enforcing judgments individually,
ensuring a group process where all creditors are treated equally.
1.2 Advantages for the Debtor
 Stay of Court and Execution: Once sequestration starts, creditors
can no longer pursue legal action against the debtor or seize the
debtor's assets individually.
 Rehabilitation: After sequestration, debtors can be rehabilitated,
meaning they are discharged from the debts that existed at the
time of sequestration, allowing them a fresh start.

2. Who May Be Sequestrated?

 Person or Partnership: Any person or partnership (but not
companies, as they are subject to the Companies Act) can be
sequestrated under the Insolvency Act.
 Community of Property: If married in community of property, both
the debtor and their spouse’s estate can be sequestrated.
 Debtor Requirements: The debtor’s estate must meet specific
criteria:
o Factual Insolvency: The estate’s liabilities must exceed its
assets (L > A).
o Sufficient Residue: There must be enough remaining assets
to cover the costs of sequestration.
o Advantage to Creditors: The sequestration must offer
creditors a reasonable prospect of receiving dividends that
are not negligible, and the outcome must be better than if
creditors pursued individual claims.

3. Preliminary Procedural Formalities for Sequestration

3.1 Voluntary Surrender Procedure
 STEP 1: Publish Notice
 o Publish a notice of surrender at least 30 days but less than
14 days before the application in the Government Gazette
and a local newspaper.
o Effects of Notice:

 Stays all sales in execution.

 A curator bonis (a temporary administrator) may be
appointed to safeguard the debtor’s estate.
 STEP 2: Give Notice
o Within 7 days after publication, copies of the notice must be
sent to:
 Creditors.
 Trade unions.
 Employees.
 SARS (South African Revenue Service).
 STEP 3: Lodge Statement of Affairs
o The debtor must submit a specific statement of affairs to
the Master of the High Court for inspection. It must remain
available for inspection for 14 days after the notice of
surrender is published.
 File Court Application: After following these procedural steps, the
debtor can apply to the court for sequestration. The court then
has discretion to either grant or refuse the order.

4. Compulsory Sequestration Requirements and Process

4.1 Who Can Apply?
 A creditor with a liquidated claim of:
o More than R100 individually.

o A total of R200 or more from multiple creditors.

4.2 Requirements for Compulsory Sequestration

 The creditor must prove:
o The debtor is factually or commercially insolvent.

o The sequestration will benefit the creditors.

4.3 Formalities for the Application

 The creditor must:
 o Furnish security to cover the costs of the sequestration
proceedings and administration.
o File the application along with a certificate from the Master
of the High Court confirming the debtor's insolvency.
o Provide copies of the application to:

 The debtor.
 SARS.
 Employees and trade unions (if applicable).

5. Acts of Insolvency
The creditor must prove that the debtor has committed one or more
acts of insolvency. These include:
 Nulla Bona Return: The sheriff returns with no goods to attach to
satisfy a judgment.
 Disposition of Property: The debtor disposes of assets to favor
one creditor or to disadvantage others.
 Absconding: The debtor leaves the country or makes
arrangements to avoid paying debts.
 Written Notice of Inability: The debtor writes a notice declaring
they are unable to pay their debts.
 Sale of Business: The debtor sells their business but is unable to
pay their debts.

6. Provisional and Final Sequestration Orders

6.1 Provisional Sequestration
 Prima Facie Evidence: The creditor must present sufficient initial
evidence of insolvency. The court grants a provisional order to
protect the estate.
 Rule Nisi: The debtor is given the opportunity to show cause why
the provisional sequestration should not be made final.
6.2 Final Sequestration
 Balance of Probabilities: The court will evaluate if the creditor has
satisfied the requirements on a balance of probabilities. If so, the
court will grant a final sequestration order, fully vesting the
debtor’s estate in the trustee.

7. Friendly Sequestration
  A friendly sequestration is when the debtor and a creditor work
together to initiate sequestration. While legal, courts carefully
scrutinize these arrangements to ensure they are not being used
to manipulate the process unfairly.

8. Other Key Concepts

8.1 Liquidated and Unliquidated Claims
 Liquidated Claim: The amount owed is definite, either by
agreement or court order.
 Unliquidated Claim: The claim involves uncertainty, such as goods
delivered or services rendered, where the exact amount is in
dispute.
8.2 Avoiding Sequestration
A debtor can avoid sequestration by showing:
 That they are not factually insolvent.
 That the acts of insolvency alleged by the creditor have not
occurred.
 That there is no real advantage to creditors in sequestration.

9. Acts Leading to Insolvency

 Leaving RSA: Debtors leave South Africa with the intent to evade
payment of debt.
 Nulla Bona by Sheriff: The sheriff finds no assets to attach to
satisfy a judgment.
 Disposition of Property: Disposing of property in favor of one
creditor or to prejudice a group of creditors.
 Attempting to Remove Assets: The debtor tries to hide or remove
assets from the jurisdiction to avoid payment.
 Failure of Voluntary Surrender: If the debtor unsuccessfully
attempts voluntary surrender.
 Written Notice of Inability: If the debtor writes to creditors
declaring they cannot pay their debts.
 Sale of Business with Debts: Selling a business but being unable
to satisfy debts owed by the business.

10. Sequestration and the Court’s Discretion

The court has discretion in deciding whether to grant a sequestration
order. The debtor must show that they meet the legal requirements,
while creditors must prove the debtor’s insolvency and the advantage
of sequestration to the creditors. Courts are particularly cautious with
friendly sequestration cases.

Consequences of Sequestration on Contracts and Legal Status

1. Contracts and Earning a Livelihood
 Earning a Livelihood: After sequestration, the debtor (now
referred to as the insolvent) can still earn a living, but they must
report any earnings to the trustee. The trustee may claim part of
the income for the benefit of creditors, ensuring the debtor can
still cover basic living expenses.
 Instituting and Defending Legal Proceedings: The insolvent loses
the capacity to start or defend legal proceedings independently.
Any legal actions must be approved and managed by the trustee,
who has the authority to litigate on behalf of the insolvent estate.
 Holding Office: The insolvent is disqualified from holding certain
public or corporate offices, such as being a director of a company,
until they are rehabilitated.

Vesting of the Estate in the Trustee

Once sequestration is granted, the debtor’s estate vests in the trustee.
This means that the trustee now controls the insolvent’s assets for the
benefit of creditors.
2.1 Property that Falls into the Insolvent Estate
 Inclusions: All movable and immovable property owned by the
debtor before sequestration, as well as property acquired during
sequestration (e.g., income or assets), automatically becomes
part of the insolvent estate.
 Exclusions: Certain personal items necessary for the debtor’s
livelihood are excluded from the estate. These include:
o Clothing.

o Tools of trade required for work.

o Possibly certain pensions or life insurance policies,

depending on specific statutory exemptions.
2.2 Unlawful Disposal of Estate Property
 Any attempt by the insolvent to hide, sell, or unlawfully dispose
of property after sequestration is considered illegal. Such actions
 may lead to criminal charges, and the trustee has the right to
reclaim such property for the estate.

Impact on the Insolvent’s Spouse

3.1 Marriage in Community of Property
 If the insolvent is married in community of property, both the
debtor and their spouse’s estate fall under sequestration. All their
combined assets are vested in the trustee. The trustee will
liquidate the entire joint estate to settle debts, even if some of
the property belongs to the spouse.
3.2 Marriage Out of Community of Property
 If married out of community of property, only the insolvent’s
estate is affected. However, the trustee may temporarily seize the
spouse’s property to verify ownership and ensure that no assets
belonging to the insolvent are hidden under the spouse’s name.
Once ownership is established, the spouse’s assets are released.
3.3 Civil Unions and Cohabitation (Section 21(13))
 In a civil union or cohabitation, similar rules apply as with
marriage out of community of property. The trustee may seize the
partner’s property if there is a suspicion that assets belonging to
the insolvent are being disguised. The trustee can release the
partner’s property once the ownership is validated.
3.4 Special Procedures
 Temporary Exemption: If the spouse or partner can prove
ownership of certain property and that retaining it won’t
prejudice creditors, the trustee may exempt those assets
temporarily.
 Release of Property: After verification, the trustee can release the
spouse’s property from the insolvent estate.
 Property Before Marriage: Any property the spouse owned before
marriage, especially in antenuptial agreements, may remain
protected.
 Antenuptial Contracts: If married out of community of property
with an antenuptial contract, the property explicitly excluded
from the marriage contract is typically protected.
 Valid Title: The spouse must provide valid documentation or proof
of ownership to prevent their property from being absorbed into
the insolvent estate.
 Donations: Any property given to the spouse as a donation, if
suspicious, may also be reviewed by the trustee. If the donation
was made to hide assets from creditors, it could be reclaimed.
Effect of Sequestration on Contracts
4.1 Performance of Contracts
 Performance Completed by Insolvent: If the debtor had already
completed their obligations under a contract before
sequestration, the trustee must continue to abide by the contract,
ensuring it remains enforceable.
 Performance Not Completed by Insolvent: If the debtor had not
completed their obligations, the trustee has the option to either:
o Abide by the Contract: The trustee may continue with the
contract if it benefits the estate.
o Repudiate the Contract: The trustee may cancel the contract
if it is not advantageous for the estate.
4.2 Trustee’s Election
The trustee has a duty to act in the best interests of the creditors.
When deciding whether to continue or repudiate contracts, the trustee
assesses:
 The financial advantage of continuing the contract for the estate.
 The potential loss or liability if the contract is canceled.

Contracts Suspended or Terminated

5.1 Employment Contracts
 Employment Suspended: Sequestration generally leads to the
suspension or termination of the debtor’s employment contracts.
o The insolvent may no longer be required to work, and
creditors cannot claim wages that are unpaid at the time of
sequestration.
o Notice of sequestration must be given, and any arrears in
wages might receive preferential treatment.
o Consultation with employees may be necessary, and
contracts terminate automatically 45 days after the trustee
is appointed unless the trustee decides otherwise.
5.2 Contracts That Cannot Be Repudiated by the Trustee
 Lease of Immovable Property: In South African law, the principle
of "huur gaat voor koop" applies, meaning a lease agreement
takes precedence over the sale of the property. If the property is
leased to a tenant, the trustee cannot repudiate the lease unless
there is a secured creditor who predates the lease.
  Sale of Residential Land in Installments: Under the Alienation of
Land Act, if the insolvent is selling land in installments, the buyer
can compel the transfer of the property despite the insolvency,
provided they meet certain legal conditions.

Specific Contracts Affected by Sequestration

6.1 Acquisition of Immovable Property
 If the debtor is in the process of acquiring immovable property
and is sequestrated before the transaction is completed, the
trustee must decide within six weeks whether to continue the
purchase. If the trustee does not make a decision, the seller may
apply to court to cancel the contract, becoming a concurrent
creditor for any loss suffered.
6.2 Hiring Property
 The trustee has three months from their appointment to decide
whether to continue or repudiate property hire agreements. If no
decision is made, the contract is considered repudiated
automatically.
6.3 Instalment Sale Agreements (National Credit Act - NCA)
 If the insolvent purchased goods on an instalment basis (e.g., a
car or electronics), and full payment has not been made,
ownership of the goods does not transfer to the buyer until the
last payment is completed.
o The seller retains a tacit hypothec (a legal claim on the
item) and remains a preferential creditor, ranking ahead of
other creditors.
o The trustee may repossess and sell the goods to satisfy the
estate’s liabilities.

EMPLOYMENT LAW
1. Unfair Labor Practice
 Definition: An unfair labor practice refers to actions by employers that
are unjust or discriminatory, impacting employees’ rights or employment
terms.
 Types of Unfair Practices:
o Dismissal or Non-Renewal of Contracts:

 Cadema Industries and SA Rugby Players Association: These

cases illustrate that dismissal or less favorable treatment in
contract renewals must be justified and non-discriminatory.
 Non-renewal or selective re-employment based on biases or
discriminatory reasons constitutes unfair labor practice.
o Refusal to Resume Work after Maternity Leave:

 Employers are prohibited from dismissing or penalizing

employees for taking legally protected leave, such as
maternity leave. Actions against employees for maternity
leave contravene labor protections.
o Selective Re-employment:

 If re-employment is biased or discriminatory, it may be

challenged as unfair labor practice under employment law.
o Constructive Dismissal:

 Constructive dismissal occurs when the work environment

becomes so intolerable due to the employer's actions that
the employee feels forced to resign.
2. Unfair Dismissal
 Types of Unfair Dismissal:
o Onus on Employee: The employee must demonstrate the
unfairness of the dismissal, except in automatic unfair dismissal
cases.
o Automatic Unfair Dismissal:

 Certain dismissals are considered automatically unfair if they

infringe on specific fundamental rights or involve
discrimination. Examples include:
 Participation in Protected Strikes: Employees have
the right to participate in lawful strikes without fear of
dismissal. Protected strikes are legally sanctioned and
cannot be grounds for termination.
 Pregnancy and Family Responsibilities: Dismissals
based on pregnancy or family duties are automatically
deemed unfair, as they infringe upon gender equality
rights.
 Discrimination: Dismissal based on race, gender,
marital status, or cultural factors is prohibited and
automatically unfair.
 Protected Disclosures Act: The act protects
whistleblowers, making it illegal to dismiss employees
for disclosing workplace wrongdoings in the public
interest.
o Fair Reasons for Dismissal (Substantive Fairness):
  Misconduct: In cases of severe misconduct, dismissal may
be justified. Offenses include theft, damage to property, and
endangering safety. The severity of misconduct and repeated
violations affect disciplinary measures.
 Incapacity: Employees unable to perform due to health or
lack of skill may be dismissed, but only if other reasonable
accommodations have been explored.
 Operational Requirements: Dismissal for operational
reasons (e.g., downsizing or restructuring) is acceptable if all
alternatives have been considered and dismissal is a last
resort.
o Fair Procedures for Dismissal (Procedural Fairness):

 Employers are required to follow a fair and transparent

process. This includes investigating the misconduct, notifying
the employee, and providing an opportunity for them to
respond.
3. Automatic Unfair Dismissal
 Examples of Automatically Unfair Dismissals:
o Participation in Protected Strikes: Employees participating in
lawful strikes, as protected by labor laws, cannot be dismissed
solely on that basis.
o Pregnancy and Family Responsibilities: Dismissals based on
pregnancy or related family responsibilities are automatically
deemed unfair under labor laws.
o Unfair Discrimination:

 Dismissals due to discrimination against race, gender, marital

status, or culture are protected against under labor laws.
 Protected Disclosures Act:
o Under this act, employees who make lawful disclosures about
organizational misconduct (whistleblowing) are protected from
dismissal.
4. Misconduct
 Code of Good Practice for Misconduct:
o This Code provides guidelines on handling misconduct fairly. It
emphasizes that disciplinary measures should be applied
progressively unless the misconduct is severe enough to justify
immediate dismissal.
 Assessing Fairness in Misconduct Cases:
o Severity and Nature of Misconduct: Misconduct cases must be
evaluated on their severity, potential harm, and the context.
 o Case Example - Mondi Paper v Dlamini:

 In this case, the court examined whether alcohol

consumption at work justified dismissal. It distinguished
between alcohol consumption and actual intoxication while
on duty. This case emphasizes that dismissal should be
proportionate to the misconduct severity.
 Procedural Fairness in Misconduct:
o To ensure fair handling, the process should include:

 Investigation: A thorough investigation should confirm the

misconduct.
 Notification and Communication: Employees must be
clearly informed of allegations in a reasonable format.
 Right to Representation: Employees are allowed union
representation or assistance from a fellow employee.
 Impartial Hearing: The hearing must be conducted by an
impartial individual or panel, possibly a co-worker, and the
decision should be documented with reasons provided.
5. Remedies for Unfair Dismissal
 Reinstatement or Compensation:
o When a dismissal is found to be unfair, remedies include
reinstatement (returning the employee to their position) or financial
compensation. The appropriate remedy depends on the case’s
specific circumstances and the extent of the unfair practice.
6. Case Study Analysis: Jane Smith’s Dismissal
 Scenario Summary:
o Jane, an employee at Apex Retail, participated in a protected strike.
After the strike ended, she was dismissed without a disciplinary
hearing or consultation. Her manager cited participation in the
strike as the reason for her dismissal.
 Key Legal Issues:
o Substantive Fairness:

 Participating in a protected strike is a lawful right. Jane’s

dismissal solely for strike participation would be
automatically unfair. Her actions did not constitute
misconduct, as she exercised her legal right to strike.
o Procedural Fairness:

 Apex Retail failed to follow a fair disciplinary process. They

did not conduct an investigation, provide her with a
disciplinary hearing, or allow her an opportunity to defend
herself. A fair process should include:
  Notice and Time to Prepare: Jane should have been
notified of the allegations and given reasonable time to
prepare a defense.
 Right to State Her Case: Jane should have been
allowed to present her side and respond to the
dismissal grounds.
 Representation and Impartial Inquiry: An impartial
inquiry, where Jane could have union or peer support,
should have been conducted. The failure to follow
these procedural requirements renders the dismissal
unfair.
INSURANCE LAW
1. What is an Insurance Contract?
 Definition:
o A contract where the insurer agrees to indemnify the insured
(financially compensate) against specified risks in exchange for a
premium.
o The insured must have an insurable interest in the subject
matter.
o The event must be uncertain in terms of happening or timing.

o Example: If a house burns down, fire insurance would cover the loss.

2. Types of Insurance:
 Comprehensive Motor Vehicle Insurance: Covers damage to the
insured's vehicle and possibly third-party damage.
 Fidelity Insurance: Protects businesses from employee dishonesty (e.g.,
theft, fraud).
 Life Insurance: Pays out upon the death of the insured or after a
specified time.

3. Formation of an Insurance Contract:

1. Proposal:
o The insured makes an offer through a proposal form, including:

 Personal information.
 Details about the subject matter (e.g., a car, home).
 Hazards associated with it (e.g., accident history).
 Financial and insurance history.
 o The proposal form represents the offer.

o Truthfulness is critical—misrepresentation can void the contract.

2. Acceptance:
o The insurer accepts the proposal and issues a policy document.

o This policy serves as evidence of the contract and outlines:

 Coverage provided.
 Exclusions (events not covered).
 Premium payable.
3. No Formalities Required:
o There are no strict formalities needed for an insurance contract. It
can be oral, but it’s usually in writing for clarity.

4. Key Parties in Insurance Contracts:

 Insured: The individual or entity seeking protection against risks.
 Insurer: The insurance company that undertakes the risk.
 Broker (if involved):
o Acts as an intermediary between insured and insurer.

o Must act with reasonable care and skill.

o Earns a commission if the policy is taken up.

o FAIS Act governs the conduct of brokers, ensuring they meet

professional standards.

5. Invalid Terms in an Insurance Contract:

Some terms are automatically invalid in insurance contracts:
 Exempting the insurer from liability for its agent’s actions.
 Waiving statutory rights: The insured cannot give up rights granted by
laws like the Long-Term or Short-Term Insurance Acts.
 Polygraph tests: The insured cannot be forced to take a polygraph test
as a condition for claims unless agreed upon after the dispute arises.
 Arbitration-only clauses: Insurers cannot insist on arbitration as the
sole dispute resolution mechanism without mutual agreement after the
dispute arises.

6. The Duty of Disclosure:

  The insured has a duty to disclose material facts—details that could
influence the insurer's decision to accept the risk or the amount of
premium charged.
 Failure to disclose can result in the insurer voiding the contract.
 Material facts include:
o Financial problems or instability.

o Previous claims or poor insurance history.

o Known risks (e.g., previous accidents for car insurance).

 The insured must disclose these facts when taking out insurance and on
every renewal of the policy.
Case Law: Mutual and Federal Insurance v Oudtshoorn Municipality:
 This case illustrated that failure to disclose material facts that a
reasonable person would consider important can lead to the insurer
avoiding the contract.

7. Non-Disclosure Exceptions:
The insured does not need to disclose:
 Facts that don’t affect the risk.
 General knowledge or facts that are widely known.
 Facts that the insurer already knows or ought to know (e.g., public
information).
 If the insurer has waived their right to be informed about certain details.

8. Timing of Disclosure:
 The duty to disclose applies:
o When the policy is first taken out.

o On renewal (e.g., annually for motor insurance).

 Changes in circumstances (e.g., buying another car or moving to a new

house) need to be reported at the next renewal.

9. The Insurer’s Right to Rescind the Contract:

 If the insured fails to disclose material facts, the insurer can rescind
(cancel) the contract.
 The insurer must show that the failure was material and known to the
insured.
  If the insurer chooses to rescind, they must return the premiums paid by
the insured.

10. Warranties in Insurance Contracts:

 Warranties are specific promises made by the insured regarding certain
conditions.
o Affirmative warranties: These confirm that a certain state of
affairs exists at the time of the contract (e.g., the insured has a
valid driver's license).
o Promissory warranties: These are promises to maintain certain
conditions during the contract (e.g., fire alarms must be installed
and working in a commercial property).
o Breach of a warranty allows the insurer to cancel the policy.

Statutory Protection:
 Some statutory protections prevent insurers from unfairly using warranties
to avoid claims.

11. Duties of the Insurer:

 The primary duty of the insurer is to compensate the insured when the
insured event occurs.
o Compensation may be in the form of money or replacement of the
lost property.
o The insurer must also act in good faith when processing claims
and investigating losses.

12. Subrogation:
 After indemnifying the insured, the insurer has the right of subrogation.
 This means the insurer can step into the shoes of the insured and pursue
recovery from the party responsible for the loss (e.g., if a third party
caused the damage, the insurer can sue them).
 Subrogation prevents:
o The wrongdoer from benefiting because the insured was covered.

o The insured from getting unjust enrichment (i.e., receiving money

from both the insurer and the wrongdoer for the same loss).

Practical Applications for Finals:

1. Application of Legal Principles:
o In exams, you may be asked to apply these principles to
hypothetical scenarios. For example:
 A car insurance case where the insured failed to disclose prior
accidents.
 A life insurance dispute over whether a polygraph test is
valid.
 A broker failing to properly disclose a material fact to the
insurer