Comparison of a contract of sale and contracts for the execution of works

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COMPARISON OF A CONTRACT OF SALE AND CONTRACTS FOR THE EXECUTION OF WORKS

What obscures the line between the building contract and the contract of sale is the production of the end result by the contractor, and the materials and labour used to achieve that end result, and the distinction between what exactly it is that the employer is paying for. In this chapter, the definitions set out under the discussion of the FIDIC contracts141 and the NEC contracts142 are used correspondingly. Similarly, the terms “Employer”, “Contractor”, “Subcontractor”, FIDIC’s defined “Engineer” and the NEC equivalent “Project Manager”, and “Works”143 (unless used generically and outside of the context of the FIDIC and NEC Contract) will be referred to as such.
Where the Contractor provides all of the materials to achieve the end result, is he not then, in theory at least, selling the product to the Employer? Although the FIDIC144 and NEC145 contracts provide for the instance in which the Employer may provide the Contractor with some materials, and even equipment (very rarely all of it), it is usual for the Contractor to provide for such aspects.
If one follows the argument of the possibility of a “mixed contract”, could it then be that the portion of the Works that is executed using the Contractor’s provided materials may fall subject to the classification of emptio venditio, and the portion where the Contractor uses the Employer’s materials fall subject to the classification of locatio conductio?
It may seem like a simple distinction, but the English courts have also held some debate on the subject. I turn to the English courts, as, as mentioned herein,146 the South African courts seem to have simply accepted the classification of the construction contract to be locatio conductio.
Lee v Griffin,148 does not deal with a construction contract, but is valuable in comparing work on an object not owned by the contractor (work on goods), and a contract of sale (emptio venditio). Blackburn J in this case considered whether work on an object or goods could become subject to a contract of sale. This case considered a dentist making a denture for a patient, and it was held that the work so executed comprised a sale of a chattel. During this time the English courts considered the value of the work compared to the value of the materials used; they then moved to considering the degree of skill and craftsmanship required to achieve the end result; and finally, they also considered what the main purpose of the transaction was.149 None of these considerations gave a clear and unambiguous answer to the quandary of how to distinguish between the contract of sale and contract for work on goods, especially in the borderline cases.
Lorenz demonstrates that the Court of Appeal151 and the Sales of Good Act  changed this position. Unfortunately for South Africa, it is no longer of much relevance in English law to make the distinction between the emptio venditio and the locatio conductio. The legislator’s intervention153 and the court’s decisions in England – being that the warranty flowing from this legislation is not limited to the sale of goods – have made it unnecessary to consider this distinction.154 German law has done the same:155 CC S 651.156 This legislation provides specialised rules for contracts for work and labour, and the warranties that flow therefrom, making it unnecessary to look to the law relating to emptio venditio.
In South Africa, there is no legislation equivalent to that of English law and German law. This makes it necessary to pursue the investigation as to whether the warranty against latent defects will apply to a construction contract when the contract does not provide for it explicitly.

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SOURCES OF LAW: THE POSSIBILITY OF A “SELF-MADE ‘LAW’”

Lorenz seems to agree with Zimmermann that it is time to recognise that the building industry has developed a “self-made ‘law’”.158 He, however, comments that in Roman law, although building contracts were accepted as falling within the locatio conductio operis, they ignored some of the special conditions under which construction work on lands is carried out, and accordingly “only very few specific rules dealing with this subject matter are to be found in the traditional civil codes.” This may be the source of the current challenge.
It makes sense that the construction industry, in many jurisdictions, saw the need to address this lacuna and attempted to do so by way of express provisions in their contracts. Not all the contracts have achieved this successfully160 but this has nonetheless developed into what is referred to as the “self-made ‘law’”, which Lorenz regards as “sociological fact of considerable importance”. It is discernibly not a law as one would have regard to as a reference source of law – it remains subject to the agreement between the parties. Pacta sunt servanda reigns supreme.

CHAPTER 1: INTRODUCTION AND BACKGROUND 
1.1 Background and research question
1.2 Process methodology
1.3 Delineation limitations and outline
CHAPTER 2: CLASSIFICATION OF CONTRACTS 
2.1 Introduction and background
2.2 Locatio conductio and emptio venditio
2.3 Essentialia, naturalia and incidentalia
2.4 The South African courts’ approach to construction contracts
2.5 Doctrine of entire contracts
2.6 Other jurisdictions’ approach to construction contracts
2.7 Comparison of a contract of sale and contracts for the execution of works
2.8 Sources of law: The possibility of a “self-made ‘law’”
2.9 Obligations under the building contracts for the contractor
2.10 Conclusion
CHAPTER 3: BREACH AND REMEDIES 
3.1 Introduction and background
3.2 General principles of breach of contract and remedies
3.3 General principles relating to warranties
3.4 Warranty against latent defects
3.5 Warranty against latent defects under an emptio venditio and the remedies explicit thereto
CHAPTER 4: SPECIFIC CONTRACTS 
4.1 Introduction and background
4.2 South African standard forms of contract
4.3 International standard forms of contract
4.4 Warranty against latent defects in the FIDIC Silver Book, Yellow Book, and Red Book
4.5 Warranty against latent defects in the NEC ECC Book
4.6 Conclusion
CHAPTER 5: CONCLUSION 
5.1 Conclusion
5.2 Recommendations
BIBLIOGRAPHY

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