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Rouwkoop clauses: What is it and is it enforceable?

The rouwkoop clause, frequently featured in agreements between sellers and purchasers, grants the seller the right to retain a portion or a specified amount of the payment if the agreement is cancelled.

The general principle, which normally applies when an agreement between two parties is cancelled, whether unilaterally or by agreement, is that of restitution according to which parties are required to return everything received in terms of such agreement to the other. The aim is for the parties to be placed in the position in which they were before the conclusion of the agreement. This principle applies “equally to the ‘guilty’ party and the ‘innocent’ party and gives rise to a distinct contractual remedy to claim restitution… albeit one that is subject to the court’s overriding equitable discretion to decline an order for restitution where it would result in the other party being unjustly enriched.”1

However, parties may choose to depart from the general principle described above. Parties often agree to include what is known as the rouwkoop clause in deals involving the sale of items like cars, businesses, or real estate, where payments are made in instalments or start with a deposit. This is a type of penalty clause which entitles the innocent party to the agreement to retain instalments already paid (in the event of an instalment sale agreement) or the deposit amount (in circumstances where the balance of the purchase price is only payable at a later stage) or some other portion of the money which has already been paid. The main purpose of a rouwkoop clause is to prevent the party making payments from easily cancelling the agreement. This is because the paying party must return what they’ve received, while the other party, usually the seller, isn’t required to refund the money they’ve already received.

Rouwkoop clauses are valid and enforceable in South Africa, despite penalty clauses generally being unenforceable under Roman-Dutch Law. However, this does not mean that a party cannot in certain circumstances claim restitution, or differently put, repayment of monies already paid in terms of a cancelled agreement. Rouwkoop clauses qualify as penalty clauses in terms of section 4 of the Conventional Penalties Act 15 of 1962 (“the Act”). This is important as it means that a court may in terms of section 3 of the Act “reduce the penalty to such an extent as it may consider equitable in the circumstances”, including not enforcing a rouwkoop clause at all.2

Courts may decide to reduce the amount subject to rouwkoop or to not enforce the clause at all in circumstances where the aggrieved party has instituted and succeeded with actions such as the actio empti or the actio redhibitoria. The aggrieved party will claim full restitution of his or her performance in circumstances where the thing purchased in terms of the agreement had latent defects when evoking these actions. These actions will be discussed in another article which will be published on Miller Bosman le Roux’s website in the near future.

Reference list:

  1. Kondile v Nothnagel NO (49891/2016) [2018] ZAGPPHC 858 (19 August 2018). Mineworkers Union v Prinsloo 1948 (3) SA 831 (A).
  2. Kondile v Nothnagel NO (49891/2016) [2018] ZAGPPHC 858 (19 August 2018). Also Custom Credit Corporation (Pty) Ltd v Shembe 1972 (3) SA 462 (A) at 473 – 474 confirmed in Bank of Lisbon International Ltd v Venter 1990 (4) SA 463 (A) at 470F. See also Matthews v Pretorius 1984 (3) SA 547 (W) at 551D.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.

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