Transcript Slide 1

LAW OF CONTRACT –
DEFINITION ,BASIC CONCEPTS
and CONSENSUS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Define a contract
Name and discuss the requirements for a
valid contract
Explain the parties to a contract
Explain the performance of a contract
Explain unilateral contrCTS
Explain reciprocal contracts
Explain nominate contracacts
Explain essentialia
Explain incidentalia
Explain incidentatlia
Null and void contracts explained
Voidable contracts explained

A contract is an agreement based on consensus
between legal subjects who have contractual capacity
to do so, and which is lawful, physically possible and
complies with the precribed formalities, reached with
the intention of creating a legal obligation.
◦ Consensus: The parties must have corresponding intentions
regarding the proposed contract and the serious intenion of
concluding the contract.
◦ Contractual capacity: The parties must have the necessary
capacity to form a legally recognised intent.
◦ Lawfulness/legality: The contract must be lawful and not
contrary to the common law / statutory rule of law / public
policy / good morals.
◦ Physical possibility: The performance must be determinded or
determinable and objectively possible.
◦ Formalities A contract must comply with any formalities
precribed by law or agreed by the parties. Formalities refer to
the external visible form of the contract.


Parties:
◦ The must be at least 2 corresponding wills for consensus to exist,
thus 2 parties must participate in the conclusion of a contract.
◦ Courts have acknowledges that a person my conclude a contract
with himself provided he acts in different capacities. However care
must be taken to avoid a conflict of interest.
Performance:
◦ This consists of positive or negative conduct.

Unilateral contracts:

Reciprocal contracts:

Nominate contracts:
◦ Only one obligation is created between the parties in terms of
which only one unilateral delivery of performance must be made,
eg. Donation.
◦ Where parties to the contract act simultaneously in the capacities
of both debtor and creditor, eg. Sale.
◦ A contract which has occurred so often that it earned it’s own name
and specific legal rules have developed for such contracts over time,
eg. Contract of Sale, Letting and Hiring, Employment, etc.

Essentialia

Naturalia

Incidentalia

Contracts which are null and void


◦ Essential minimum characteristics to identify it as a nominate
contract or distinguish it from other contracts.
◦ Contractual provisions which naturally form part of a contract
without parties having specifically agreed to that, but it can be
expressly excluded by the parties eg. Voetstoots.
◦ Additional terms and conditions which the parties wish to include,
as well as any express incidentalia that limit/change/exclude any
of the naturalia.
◦ One or more of the requirements for a valid contract are absent.
No contract came into being.
Voidable contracts
◦ Contract came into being but can be set aside due to some defect in
the process of concluding the contract.
Unenforceable contracts
◦ Some legal obligations are recognised by law, but not enforced
(natural obligations). The contract remains valid but
unenforceable.

Consensus is the most important requirement for
conclusion of a contract. The wills of the parties and
their intention with the contract is the basis on which
consensus is reached. Elements of consensus:
◦ Parties must be unanimous that they have the serious
intention to create certain consequences.
◦ They must be unanimous that these consequences are juristic
consequences.
◦ They must be aware of the unanimity.

The law recognises 2 types of contracts:
◦ Contracts based on actual consensus.
◦ Contracts based on ostensible consensus – consensus is not
present, but the law recognise the contractual liability.

3 Theories exist in SA law to determine whether
consensus exist:
◦ Will Theory Generally accepted in SA Law. Consensus exists
because parties are in actual agreement due to corresponding
intentions.
◦ Direct Reliance Theory Where True consensus is absent
because of a material mistake, reliance created by one party
may in some cases be acknowledged as proper consensus,
namely ostensible consensus.
◦ Declaration Theory Is not applied in SA Law. Parties are
bound by their expressed intentions and not to their real
intentions.


Communication and conscious co-operation between
parties is required for real consensus. Parties’
intentions are expressed by way of declaration of
intent and can form an invitation to do business, an
offer, a counter-offer or an acceptance.
Simulated contracts Parties often pretend to
conclude a contract of a specific nature, but their true
intentions indicate other motives. In these cases the
law gives effect to the true intention of the parties.



A declaration of intent made a prospective contracting
party that contains all the proposals regarding the
proposed contract, and is of such a nature that
acceptance thereof legally brings a contract into
being.
This must be distinguished from an advertisement
which is purely an invitation to do business.
Requirements for a valid Offer:
◦ The offer must be complete: It must contain all provisions,
conditions, terms and qualifications which will be included in
the final contract. A counter-offer can be made to include or
alter certain provisions – the contract only comes into being
once the offer has been accepted.
◦ The offer must come to the actual knowledge of the offeree
This refers to the content and existence of the offer.
◦ Must be definite and include proposals regarding all
essentialia. If offer is to vague the law will not acknowledge
the declaration as a valid offer.
◦ Offer must be clear, certain and unambiguous Thus it can
be accepted without any further qualification.
◦ As a general rule it does not have to comply with formalities
It can be made verbally / in writing / expressly / tacitly.
Formalities can be agreed between parties.
◦ Offer is made with the serious intention of creating a legal
obligationIt must be distinguished from an advertisement, etc.
◦ Offer must be addressed to a specific person or a group of
persons. Offer is only completed when the offeree has
knowledeg of it.

An offer is only a unilateral juristic act and cannot
create an legal obligation on it’s own. It does however
create the opportunity to create a legal obligation once
it has been accepted.

An offer will terminate when:
◦
◦
◦
◦
◦
Offer is rejected;
Revocation of the offer before acceptance thereof;
Lapse of time;
Death of the offeror or the offeree;
Contractual incapacity.



An unqualified declaration of intent made by the
offeree, approving the offer without reservation.
Acceptance of the offer leads to consensus and the
conclusion of a contract if all other requirements for
a valid contract has been met.
Requirements for a valid Acceptance:
◦ Acceptance can only be made by the offeree, who is aware of
the offer.
◦ The offeree must have the serious intention to be bound to his
acceptance.
◦ Acceptance must be clear, certain and unambiguous.
◦ The contents must correspond with that of the offer.
◦ No formalities are required unless agreed by parties.
◦ Acceptance is only complete when the offeror is notified.

Why is it important to determine where a contract
came into being?
◦ To determine the status of the parties.
◦ To determine which statutes and other legal principles apply
to the contract of the parties.
◦ To determine when contractual duties commence and rights
accrue.
◦ To determine which court has jurisdiction in the event of a
dispute.

Declaration theory
When the offeree voiced his
acceptance of the offer. This does not mean that the
offeror received notification of the acceptance. This
theory is not applied in SA Law.

Expedition theory
When the acceptance is
dispatched to the offeror. This applies in SA Law only
to real postal contracts (Final offer and acceptance is
made by post).
◦ Requirements:




Offer and Acceptance by post
Other method of acceptance not prescribed
Postal service operational
Acceptance must bear the correct address

Reception theoryWhen the offeror receives the
acceptance – applies to contracts concluded via data
messages. Contract is conluded when the data message
containing the acceptance enters the information
system used by the addressee, and is capable of being
retrieved and processed. Place of conclusion is where
the person to whom is communicated usually resides
or does business.

Information theory
Where and when the offeror
receives notification that his offer has been accepted.
This theory is generally applied in SA Law. Includes:
Fax / Telephone / Telex

Auctions:
◦ Simple auction: A bidder makes an offer through his bid, which the
auctioneer accepts of rejects.
◦ An auction subject to to conditions: Constitutes an independent
offer that entails any sale concluded at the auction will
automatically be subject to specific conditions.
◦ An auction with / without reserve: A minimum price is set or the
highest bid is accepted.

Pacta de contrahendo

Contracts concluded are aimed and the conclusion of
future contracts.
◦ Options An agreement to keep an offer open for a specific period
of time.
◦ Preferential rights Right which gives the holder of the right the
first opportunity to make or receive an offer in the future.

3 forms of consensus can be distinguised
◦ Real consensus – reached expressly or through conduct.
◦ Presumed consensus:
 Tacit terms: Sometimes it is necessary to include missing terms
in a contract, the court will only include a term:
 If inclusion of the term is fair and reasonable;
 Term is compatible with the common intention of the parties;
 Interpretation of the contract as a whole must indicate that parties
would have included the term it if they were aware of it at the time
of concluding the contract;
 Stipulation must be necessry in order to give business efficiany to the
contract as a whole;
 Contents of the stipulation must be clear and certain;
 Inclusion of the stipulation must be necessary;
 Tacit Term must not be contrary to the express term of the contract
◦ Ticket contracts:
◦ Does the stipulations printed on the ticket contractually bind
the passenger?
 Did the holder know the words appeared on the ticket?
 Was he aware that it referred to tems of the contract?
 Did the issuing party draw his attention to the fact that that the
words contained terms of the contract?

Consensus through operation of law
◦ These stipulations are automatically included in the contract
eg.
 Common Law Warranty agaist latent defects.
 Legislation
Can require contracts to contain spesific
stipulations eg. National Credit Act, 2005.
 Trade usages
Only if the requirements are met:
 Universally applied; well established; well known in the commercial
field; reasonable; clear determinable content; lawful; not contrary to
the contract.
Consensus continued...
Contractual Capacity




Parties reached consensus in a situation where they would
have concluded the contract had they been aware of the
real circumstances.
In such cases the contract is null and void or voidable if
the prejudiced party elects do so.
If the contract is null and void – no legal obligation is
created.
Factor which influence consensus are:
◦
◦
◦
◦
Error
Misrepresentation
Duress
Undue influence


This is a misunderstanding / misconception by one or
more of the parties regarding certain facts, events or
circumstances.
Error in motive (reason for conclusion of the contract:
◦ Party errors regarding the reason which motivated the
conclusion of the contract.
◦ This does not influence the validity of the contract.
◦ If error was caused due to misrepresentation by the other
party – such a contract is voidable due to misrepresntation
and not error.

Error as to the contents / existence of the
contract
◦ Error regarding the person with whom the
contract is concluded
eg.
Employment
contract. Error nullifies the contract.
◦ Error regarding the name of the person with
whom the contract is concluded eg. Pete vs Peter.
Error is irrelevant and contract remains valid.
◦ Error regarding the nature of the contract
eg.
Sale vs Lease. Error nullifies the contract.
◦ Error regarding the performance Error regarding
the contents of the contract influences consensus.
Eg. Siver vs copper. This type of error nullifies the
contract provided it is also iustus error.
 The
Iustus-error approach
 We have to determine if the error was a
reasonable and fair mistake / error before
consensus will be set aside.
 The person claiming error must prove that
error was both material and reasonable.
 Material = substantial enough to influence
consensus.
 Reasonable = if it could objectively be
excused in law.





A false statement of fact made either expressly or
tacitly. This can be done intentionally or negligently.
Contracts = voidable if the misrepresentation has
influence upon the motive or reason for the
conclusion of the contract.
Misrepresentation must be material an persuade the
other party to conclude the contract.
A person claiming misrepresentation must prove that
a false statement was made.
A mere expression of opinion however is not a
misrepresentation. Puffing does not constitute
misrepresentation.




If the prejudiced party decides to elects to avoid the
contract no contractual remedies are available.
Restitution and Delictual damages can be claimed.
Damages can be claimed for intentional and negligent
misrepresentations,
but
not
innocent
misrepresentations.
Eg. Contract of Sale:
◦ Actio quanti minoris – price reduction is claimed for
damaged due to misrepresentation. If buyer wished to
continue with the contract.
◦ Actio redhibitoria – prejudiced party claims full restitution
and damages.




Duress can cause a person to do something which they
would normally not have done.
It could be so serious that he acts without being aware
of what he is doing – vis absoluta (loses contractual
capacity temporarily, thus contract null and void)
In less serious situations a person is influenced to do
something he would not have done if he was not
under duress. vis compulsiva (contractual capacity is
retained , thus contract voidable)
Requirements:
◦ Other party to the contract must be responsible for the
duress.
◦ Duress must have caused the conclusion of the contract.
◦ Duress must consist of a wrongful threat of damage / harm.
◦ Contract must be prejudicial to party under duress.
◦ Threat must be of an imminent or inevitable evil.







Consensus was improperly obtained.
Requirements:
One contracting party must have obtained influence
over the other party.
Influence must have weakened the prejudiced party’s
resistance and rendered his will pliable and open to
manipulation.
Influence must have been used in an unconscionable
manner.
Influence must have convinced the prejudiced party to
reach consensus to his own detriment.
Prejudiced party reached consensus which he would
not have done had there not been undue influence.






Legal capacity:
Capable of bearing legal rights and duties.
Eg. Infans has legal capacity, but not contractual
capacity.
Contractual capacity:
The competence to perform a juristic act.
2 components of contractual capacity:
◦ The ability to form a will
◦ The ability to act with sound judgement in accordance with
such a will.



All human beings are natural persons, but their legal
capacity / status may differ.
Status is determined by a persons qualities (age, sex, etc.)
and circumstances (marriage, insolvency, etc.)
Status determines contractual capacity.
◦ Person’s without contractual capacity
◦ Person’s with limited contractual capacity
◦ Person’s with full contractual capacity

Juristic persons are artificial persons created by law eg.
Company, CC, etc.
◦ A separate legal identity with its own legal personality is awarded to
such a juristic person.
◦ A juristic person is established with certain aims and objectives in
mind and must act within the authorised powers given (intra vires
vs ultra vires)
◦ A juristic person acts through a representative or organs, which are
always natural persons.

These persons cannot perform any jusristic act.
◦ Persons under the age of 7:
◦ Infans has legal capacity but no contractual capacity.
◦ A parent / guardian may act on his behalf for the purpose of
administration of the estate and for his maintenance and
support.
◦ Mentally incapacitated persons:
◦ Every person is presumed to be sound of mind, unless the
contrary is proven.
◦ Mentally deficient persons =certified and declared to be
unsound of mind by the High Court.
◦ Contracts concluded by these persons are null and void unless
at the time of conclusion they had all their mental faculties.
◦ These persons have legal capacity and can aquire rights /
duties by juristic acts performed by his curator on his behalf.
◦ Persons in a state of automatism or under the influence of
medication or alcohol:
◦ Person is unable to form intent and realise the consequences
of his actions due to the influence of eg. Epilepsy, alcohol,
medication, etc.
◦ No contractual capacity exists while this state persists. Juristic
acts performed in such a condition is null and void.
◦ Performance delivered must be returned or if that is not
possible he is liable in terms of unjustified enrichment.
◦ The person claiming contractual incapacity must prove it.





These persons can only perform juristic acts with the
assistance of another person.
The assistance supplements the inadequate powers of
judgement of the person with limited contractual capacity.
Minors:
All natural persons between 7 an 18 years.
Majority can be obtained by
◦ turning 18;
◦ conclusion of a valid marriage (majority status remains in case of
devorce);
◦ through an order of court.

A minor must be assisted by a parent / guardian when
performing a juristic act, or obtain consent before / after
(ratification) he acts.

Where minor has full contractual capacity:
◦ Only rights and no duties are obtained. If any duties are
obtained the assistance of the parent / guardian is required.
If contract is not to the benefit of the minor – restitutio in
integrum.

Where minor acts with consent or assistance of
parent / guardian:
◦ Supplement the minor’s lack of capacity and advise him at
the time of performance of the juristic act.
◦ Juristic acts by minors can be ratified by parent / guardian.

Where guardian acts on behalf of the minor:
◦ Rights and duties are obtained by the minor due to act of the
parent / guardian.
◦ Act may only be to the benefit of the minor – if not restitutio
in integrum.

Where additional consent above and beyond consent
of the parent / guardian is required:
◦ Consent of the Master of the Supreme Court is required for
eg. Sale of immovable property < R100000; >R100000
consent of High Court required.

Prohibited acts:
◦ Eg. Marriage.

Emancipation:
◦ Consent to act independantly, this may revoked at any time.
◦ Majority not obtained.

Minor pretends to have attained majority:
◦ Minor is bound as if he has majority status, and a claim for
restitution not available.



A contract concluded on behalf of a minor which is
prejudicial to the minor - Restitutio in integrum can
be claimed.
Contract is set aside and parties placed in the position
they were in before conclusion of the contract.
Minor cannot claim restitution:
◦ Minor acted fraudulently.
◦ Minor ratifies contract after majority is obtained.
◦ Action has prescribed.

Where parent / guardian exceeds authority:
◦ The minor will not be held liable.

Where minor acts as representative of parent /
guardian:
◦ Principles of Agency apply. The agent will not be held liable.

Where minor acts without consent or assistance:
◦ Minor liable if ratification takes place.
◦ If minor already performed – restitution is claimed, unless
ratification takes place.
◦ Performance delivered by other party – no counter
performance can be claimed, minor returns performance
with possibility of claim in terms of unjustified enrichment.

Marriages before 1 November 1984:
◦ In community of property:
◦ One joint estate, owned equally in undivided shares.
◦ Before 1 December 1993 – husband still retained marital
power, thus wife had limited contractual capacity.
◦ Out of community of property – community of property
excluded:
◦ 3 estates formed.
◦ Out of community of property – community of property and
profit and loss excluded:
◦ 2 estates existed.
◦ Before 1 December 1993 – husband still retained marital
power, unless excluded by an antenuptial agreement.

Marriages after 1 November 1984:
◦
◦
◦
◦
◦
In community of property:
Both spouses have equal capacity to manage the joint estate.
Consent required in some instances to protect spouse.
Out of community of property:
2 seperate estates with accrual system.

Prodigals:
◦ Habit or inclination to dissipate away his finances.
◦ Placed under curatorship by court and limitation on
contractual capacity can only be lifted by an order of court.

Persons under curatorship:
◦ Unable to manage own affairs due to disability, illness, etc.
◦ Curator assists in handling of the affairs, contractual capacity
not affected in any way.

Insolvency:
◦ Contractual capacity limited regarding acts such as selling
assets without consent of trustee.
◦ Contractual capacity regarding eg. Marriage is not affected.

Has full contractual capacity to perform juristic acts.