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5/5/2011 Gawie Kanjemba 201030845

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

Sale at reasonable price

Introduction
It is a general principal of the law that a contact of comes to existence only when an agreement of the purchase and sale is concluded between the seller and the buyer. This is in accordance with what has been said about consensus. Furthermore, the merx must be certain or ascertainable and so must the price. If the price is not certain or ascertainable, the contract is void.1 This principal begs the question of whether a contract of sale can be said to be binding when there is a term stating that the merx is to be paid for at a reasonable price. It does not matter whether the term is implied or expressly stated in this contract, the crux of the discussion is really to critically talk about the validity of the contract of sale that includes a reasonable price as a way of determining what price the buyer must pay to the seller.

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.

What constitutes a reasonable price?

A price is certain when it can clearly be deduced from the contract, the amount that must be paid, and it is ascertainable when there is a stipulated method that can be used to determine the purchase price without reference to the parties themselves.2 If parties agree to buy and sell but are silent as to the price, in all ordinary circumstances it will no doubt be implied that they have agreed on the usual price (which is in s sense a reason price where there is a reasonable price). This happens with goods that are readily bought in the market, goods are bought without any explicit reference to the price. We see this when we by sweets at a teller
1

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)

Authority rendering such a contract invalid

There are some authorities that govern that a contract entered into with a reasonable price will be rendered void. Courts are however moving away from this view to adopt the opposite. In Elite Electrical Contractors v The Covered Wagon Restaurant7, the appellant an electrical business sued the respondent for the sum of $23 342. This amount was claimed in respect of work done and materials supplied by the appellant to the respondent at the respondents special instance and request. They had not agreed upon a fixed amount to be paid by the respondent to the respondent for the materials and work done. It was agreed between the parties that the appellant would do work notwithstanding that a firm contract price had not been agreed. It was held that an implied term that a person will pay a fair and reasonable charge for goods supplied and work done imports sufficient certainty into a contract to avoid the need for a court to rule that the contract is void for vagueness. In Adcorp Spares PE (Pty) Ltd v Hydomulch (Pty)8, in and during the September 1970 the plaintiff and the defendant entered into an oral agreement in terms whereof the plaintiff sold to the defendant, who purchased from at a certain Bermuda King sprig planter for an agreed price of R5750 or alternatives for a fair and reasonable price, which fair and reasonable price is R5750. The purchase price aforesaid was to be paid by the defendant to the plaintiff after the lapse of a reasonable time after delivery of the said planter. Pursuant to the said agreement the said planter was duly delivered to the defendant. The defendant requested on what basis does the plaintiff compute the fair and reasonable price of the said planter as being R5750? to these request the plaintiff replied: The defendant is not entitled to the particulars requested The issue was brought before the judge as an exception to the plaintiffs alternative cause of action and it was held that an allegation that the parties had agreed on a reasonable price was excusable. There being no valid or enforceable agreement of sale.

Authority rendering such a contract valid

JP Macdonald in the case of Elite Electrical Contractors v The Covered Wagon Restaurant9 when he says that the rule that renders a contract void for the use of a term of a reasonable price might or might not be good law when applied exclusively to contract of sale but in so far as some cases suggest that it is a general rule of contract. He says they are wrongly decided. My opinions surround whether voiding a reasonable price contract is good law or not, but whether or not it is good law or not, there is growth in the view that they can be rendered as enforceable and valid. It is difficult to see on what principal a sale for a reasonable price should be regarded as invalid, there is authority for the view that, where there is an agreement to do work for remuneration and the amount thereof is not specified; the law itself provides that it should be a reasonable.10
7 8

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!

11 12

Ibid (6) Sudbrook Trading Estate v. Eggleton (1983) 13 Ibid (7)

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