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Contents
Introduction ............................................................................................................................................. 3 Privity of contract.................................................................................................................................... 3 What constitutes a reasonable price? .................................................................................................... 3 Authority rendering such a contract invalid ........................................................................................... 5 Authority rendering such a contract valid .............................................................................................. 5 Conclusion ............................................................................................................................................... 6 BIBLIOGRAPHY ........................................................................................................................................ 7 BOOKS ................................................................................................................................................. 7 CASE LAW ............................................................................................................................................ 7 STATUTES ............................................................................................................................................ 7
Privity of contract
One sure sign of the personal and private nature of contracts is that no one but one of the parties can go to court and enforce the contract even if the contract was to operate to a third partys benefit. This is known as the privity of contract rule. So the court itself cannot create a contract that was not intended or agreed upon by the parties in the said contract. With this in mind, we can further deduce that the reasonable price that the court is going to determine will not be considered the court making a contract for the parties, but rather that the court is trying to ascertain what constitutes reasonable price in the contract between those parties.
Aris Enterprises (Finance)(Pty) Ltd v Waterberg Koelkamers (Pty) Ltd 1977 2 SA 425 (A); Patel v Adam 1977 2 Sa 653 (A) 2 P Havenga, C Garbers, M Havenga, WG Schultze, K Van der Linde, T Van der Merwe; General Principals of Commercial Law, 4rth edition, 138 (3)
or similar products. A valid contract comes to being under what was coined as customary price of the merx. In the case of Erasmus v Arcade Electric3, the respondent lent the appellant a two horsepower engine. After some time had passed he suggested that the appellant should buy it. Appellants son replied that he and his father would buy it, but no agreement was reached as to the price, the respondent being satisfied with the fact that the engine would be bought. Two years later the respondent for the first time debated the appellant with 18 pound in respect of the engine. In a subsequent action a magistrate gave judgment for the engine. On appeal against the judgment, it was held that; in our law a contract of sale at a reasonable price is invalid, but that in certain cases a term may be presumed to be implied, as where a person buys an article from a trader without a price being fixed; in such a case the price is the one normally charged by the trader for that type of article, or the price he himself paid for it, or, failing that, the ruling market price. For this I understand that where a trader has a usual price for the merx purchased, that is the price which the buyer undertakes to pay if the parties do not mention price. That seems to me a correct statement of the law of sale.
It seems clear this far how the price of a merx can be determined. It is imperative however that one knows that when the price is said to be a reasonable price, it does not contain in what is said to be an ascertainable price, because there is no clear method that can be used to determine to the parties in the contract the purchase price. Terms to be bound by what is fair and reasonable are well known throughout the law of contract.4 If something is reasonable, it is has an intelligent approach supported or justifiable by reason; fair, proper, sound behaviour that avoids needless error and steers clear of extremes. Thus, reasonable price can be defined as commercial decision reached jointly between a buyer and seller, reflecting a judgment influenced by the economic realities of the marketplace and the relative bargaining powers of the parties.5 Generally, it is high enough to cover the seller's costs and a reasonable margin, but not high enough for the seller to realize monopolistic profit. It can also be defined as a price that provides the best total value comprising of availability, delivery time, fitness for purpose, payment terms, quality, quantity, and service. I must also add that a reasonable price is not necessarily the lowest price. In the Foley6 case selling price was defined as to constitute which is fair to both parties considering the quality, performance, supply situation, delivery time, and payment options.
3 4
1962 (3) SA 418 (T) V Pretorius, S Mischke; Gibson South African Mercantile & Company law, seventh edition, 121 (1) 5 R Bradgate; Comercial law, Third edition, 205 (4) 6 Foley v. Classique Coaches Ltd.(1934)
1973 (1) SA 195 1972 (63) SA 663 (T) 9 Ibid (7) 10 See Chamotte (Pty) Ltd v Cark Coetzee (Pty) Ltd 1973 (1) SA 644 (A) at 649C-D
In the Foley11 case, the issue of price was omitted from a contract that nevertheless ran for three years without a hitch. When the defendants tried to buy petrol elsewhere, basing their argument that the exclusivity contract was void for lack of agreement on price, the court disagreed. Each case is decided on its own merits and for three years, both parties believed they had a contract. The court implied into the contract a clause to the effect that the petrol was to be of reasonable price and quality In the Sudbrook12 case, an agreement to purchase property set up a system for determining the price "not being less than 12,000" involving consultation with assessors appointed by each party. The court decided that this was a valid contract. "The parties intended that the lessee should pay a fair and reasonable price to be determined as at the date when he exercised the option." Many provinces in South Africa have sale of goods legislation which provides that a contract for the sale of goods is valid even though no price has been agreed, in which case "the buyer shall pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case." These provincial laws also deal with problems associated with third-party valuations and warranties which are implied in sale of goods cases such as "quiet possession", "free from any charge or encumbrance" and, where representations have been made, that the goods are "durable for a reasonable period of time."
Conclusion
In a contract for the sale of goods, the failure to state a price will NOT prevent the formation of a contract if the parties original intent was to form a contract. A reasonable price will be determined by the court. For terms to be implied in any particular case depends on the circumstances of that case and is not decided by reference to other cases where the facts may be very different.13 Provided that the price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties. Where the price is not determined the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. This can also be clearly concluded from the definition of a reasonable price that I offered above!
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BIBLIOGRAPHY
BOOKS
1. Gibson, JTR. & Comrie, RQ. (1997). South Africa Mercantile & Company (7th Ed.). Juta & Co Ltd 2. Havenga, P., Havenga, M., Kelbrick, R., McGregor, M., Shulze, H., Van der Linde, K. (2007). General principles of commercial law (6th Ed.). Juta & Co Ltd 3. Kahn, E., Zeffertt, D., Pretorius, JT., Visser, C. (2000). Contract and Mercantile law: through the cases (2nd Ed.). Juta & Company Limited 4. Kerr, AJ. (1996). the law of sale and lease. (2nd Ed.). Butterworth 5. Swanepoel, JPA., Markins, CT., Lapping, SJ., Reynecke, JJ. (1994). Introduction to Mercantile law (2nd Ed.). Butterworth Publishers (Pty) Ltd 6. Thomas, PHJ., Van der merwe, CG., Stoop, BC. (1998). Historical foundations of South African private law. Butterworth: Durban
CASE LAW
1. 2. 3. 4. 5. Adcorp Spares PE (Pty) Ltd v Hydromulch (Pty) Ltd 1972 (3) SA 663 (T) Elite Electrical Contractors v the Covered Wagon Restaurant 1973 (1) SA 195 (RA) Erasmus v Arcade Electric 1962 (3) SA 418 Genac Properties JHB (Pty) Ltd v NBC Administrators CC 1992 (1) SA 566 (A) Machanick v Simon 1920 CPD 333 6. Shell SA Pty v Corbitt & another 1986 (4) SA 523
STATUTES
1. Sale of Goods Act no 1979