Cotas v Williams and Another

• Jurisdiction: South Africa
• Citation: 1947 (2) SA 1154 (T)

Cotas v Williams and Another
1947 (2) SA 1154 (T)

1947 (2) SA p1154

Citation	1947 (2) SA 1154 (T)
Court	Transvaal Provincial Division
Judge	Neser J and Clayden J
Heard	May 6, 1947
Judgment	May 28, 1947

Flynote : Sleutelwoorde

Sale — Movables — Goodwill — Whether doctrine of laesio enormis applicable — Practice — Pleadings — Exception — Ground not advanced in court below — Whether competent to take such ground on appeal.

Headnote : Kopnota

The doctrine of laesio enormis may be applied in the case of a sale of movables, but it does not apply in those cases in which there is inherent in the sale some

1947 (2) SA p1155

element of speculation, which inclines the Courts to tell the parties to that sale to carry the risk.

Goodwill in its nature is not such a speculative thing, and the doctrine of laesio enormis may be applied to a sale of goodwill.

Respondents had purchased the restaurant, general and fresh produce dealer's business together with all the fixtures, fittings, goodwill and stock for £6,000 from the appellant. The seller undertook that for 3 years she would 'not be engaged, nor be directly or indirectly interested in any business of a restaurant, general dealer and fresh produce dealer in the municipal area of B'. In an action by the respondents for a cancellation of the sale on the ground of laesio enormis, the respondents averred that the value of the assets, viz., fixtures, fittings, stock and goodwill, amounted to £2,100. Appellant excepted to the summons on the ground that the doctrine of laesio enormis did not apply to the sale set out in the respondents' claim. A magistrate's court, having overruled the exception, the seller noted an appeal on the ground that the judgment was bad in law, in that (a) the doctrine of laesio enormis did not apply to the sale set out in the pleadings (b) the purchasers had failed to place a value on all the incidents of the sale and consequently had failed to allege that what had been bought by them was less than half the value of the purchase price.

Held, that the appellant could not on appeal urge the second ground as that had not been raised in the exception in the court below.

Held, further, in the absence of evidence to establish that in the sale of the goodwill there was an element of chance, that the doctrine of laesio enormis was applicable, and the exception had been rightly dismissed.

Held, further, that the restrictive covenant clause did not exclude the application of the doctrine of laesio enormis.

Case Information

Appeal from a decision in a magistrate's court. The facts appear from the reasons for judgment.

N. Philips, for the appellant: The doctrine of laesio enormis does not apply to the sale of a business as a going concern. Unless all the various undertakings made by the seller in the agreement of sale are taken into account it is impossible to decide for the purpose of applying that doctrine what is a justum pretium. The stock and fittings can be valued, but not the goodwill and other incorporeal rights. There may be a trade formula for assessing those rights, but there is no true means of doing so. If restitution were required, how could plaintiff comply in respect of the quota, telephone, restraint, and right of occupation dealt with in the agreement? There is no authority which suggests that the doctrine applies to cases of this nature; they fall within the class excluded from its operation: Wessels, History of Roman-Dutch Law, at pp. 607 - 11; Wessels, Contract (Vol. II, sec. 5081); Botha v Assad (1945 TPD 1, at pp. 3, 5, 6, 8). The doctrine is out of touch with trade. There must be a verum pretium for its application, but the valuation of a business can be at best only an approximation.

1947 (2) SA p1156

To apply the doctrine the value must be known for certain: see Wessels, Contract (Vol. II, secs. 5071 - 5098); Voet, 18.5.15 (Wilson's translation, p. 95). Here the real price cannot be ascertained, even though it may be possible to make estimates and there may be persons prepared to give a valuation. See also Grotius, Inleiding (3.52.2); Schorer, Aanteekeningen (ad loc. cit); Huber, 3.6.7, 8 (Gane's translation, Vol. I, pp. 427 - 8). The doctrine has no application where there is speculation as to the price: Pothier, Obligations, 1.1.3, 37 (van der Linden's translation, 1804 ed., pp. 49 - 50); Moyle, Sale, p. 186; Sande, Decis. Fris. (3.4.16); Kingsley v African Land Corporation Limited (1914 TPD 666, at p. 674); Stellenbosch Municipality v Lindenburg (3 S., 345, at p. 350); Couch v Lipschitz (1918, W.L.D. 78). In a case like this the purchaser buys a mere hope that people will continue to patronise the business. As to goodwill and the sale thereof, see Receiver of Revenue, Cape v Cavanagh (1912 AD 459, at pp. 464 - 5); Lindley, Partnership (10th ed., pp. 523 - 4); Cruttwell v Lye (17 Ves. Jun., 335; 34 E.R. 129, at p. 134); England v Downs (6 Beav. 269; 49 E.R. 829, at p. 832); Austen v Boys (2 de G. & J. 626; 44 E.R. 1133, at p. 1136); Trego v Hunt (1896, A.C. 7, at p. 16). Usufructs are valued for sale - cf. Act 29 of 1922, sec. 12 - but such sale is regarded as the sale of a spes: no justum pretium can be fixed. Mineral rights may be valued by reference to sales of similar rights in the vicinity, but such a valuation does not represent the true value of the property.

Secondly, the items mentioned in clauses 6, 7, 8, 9 and 11 of the agreement should all have had a value placed upon them by plaintiffs, since the price was paid in respect of them all. But they cannot be valued. The Court should lean against an extension of the doctrine of laesio enormis.

S. M. Kuper, K.C., for the respondents: The second ground of appeal does not now arise and I object to its being raised. If it is a good point it could have been met by further particulars

What was sold here were the items valued in the particulars supplied. Clauses 1 and 2 of the agreement show what was purchased. The other terms are inserted only to protect what was sold: see clauses 6, 7, 8, 11: the goodwill was not to be tampered with.

Laessio enormis applies to the sale of movables: Botha v Assad (supra, at p.3); Tjollo Ateljees Bpk v Small (1947 (1) S.A.L.R. 485).

1947 (2) SA p1157

As stated in Cavanagh's case (supra), goodwill is generally compounded of two elements, personality and locality. The personality may count for nothing. Barnes' Income Tax Handbook (5th ed., pp. 91 - 2); Case 151, 4 S.A.T.C. 296. Goodwill is a capital asset; its true price can be determined; it has a market value. Also in the valuation of land uncertain factors have to be taken into consideration. Inability to state an amount with perfect exactitude does not prevent one's fixing the value at the time of the sale. The sale of a business is no unusual thing. Whether or not the goodwill has a saleable value is a question of fact; see Lindley (supra); Austen v Boys (supra); Wessels, Contract (vol. II, secs. 5097 - 8). In the reference to 'sale of a chance or something of a speculative nature' the word 'chance' is used in a sense different from that used in defining goodwill. There is an element of chance in every purchase, e.g., whether revenue will continue to accrue. There is no question of extending the doctrine of laesio enormis; it is merely a matter of requiring its application.

Philips, in reply: The doctrine cannot be applied to this type of sale, when the purchaser buys the hope of making a profit. Whatever valuation is made cannot be a true valuation. Appellant is entitled to raise the second ground of appeal: See Rule 20 (2) (i) of Magistrates' Courts Rules.

Cur adv vult.

Postea (May 28th).

Judgment

Clayden, J.:

On the 21st March, 1946, appellant and respondents entered into an agreement, the relevant provisions whereof are:

MEMORANDUM OF AGREEMENT OF SALE made and entered into at Benoni by and between:

TASIA COTAS

of the one part (hereinafter referred to as the Seller) and

THOMAS ROBERT WILLIAMS

and

SIDNEY JOHN WILLIAMS

of the other part (hereinafter referred to as the Purchasers).

WHEREAS the seller is carrying on business at 4, 11th Avenue, Northmead, Benoni, as a restaurant dealer and fresh produce dealer under the style and firm of 'Marina Cafe'.

AND WHEREAS the Seller has agreed to sell to the Purchasers who have agreed to purchase from her the said business together with all fixtures and fittings, goodwill and stock for the sum of £6,000 (six thousand pounds).

1947 (2) SA p1158

Clayden J

NOW THEREFORE THESE PRESENTS WITNESS:

1.

THAT the Seller hereby sells to the Purchasers who hereby purchase from her the business of restaurant, general dealer and fresh produce dealer known as 'The Marina Cafe' and presently carried on by her at 4 - 11th Avenue, Northmead, Benoni.

2.

THAT the purchase price aforesaid shall include the fixtures, fittings and appurtenances detailed in the annexure attached hereto...