CHAPTER 2:

THE LAW OF CONTRACT

1. WHERE DOES THE LAW
OF CONTRACT FIT IN?
Law of
persons

Law of
property
Private law
Substantive Law of
law obligations
Public law
National Procedural
law law etc.

International
law
 2. DEFINITION OF A CONTRACT

“A contract is a multilateral juristic act

that creates a legally binding
relationship with resulting rights and
duties between the parties.”
 3. ESSENTIAL ELEMENTS
OF A CONTRACT

Term Explanation

Essentialia Minimum terms on which parties must agree

to place contract into a specific category

Naturalia Terms that automatically form part of contract

by operation of law
Incidentalia Terms included by parties for their own
convenience
 3.4. 3.5.
Capacity to Certain and
contract definite
terms
3.3. 3.6.
Reality of Lawfulness
consent

3.2. 3.7.
Serious Possibility of
intention performance

Valid
contract
3.1. 3.8.
Consensus Formalities
 3.1 Consensus

Every agreement is reducible to an offer and an

acceptance:

Offer Acceptance Contract

 Offer and acceptance

Option Right of pre-emption

• Grantor undertakes to keep • Also a right of first refusal.

offer open for period of time.
• Grantor undertakes to first
• Offer may not be withdrawn make an offer to the grantee.
during this period.
• If grantee refuses offer,
• Grantee must accept or refuse grantor may make the offer to
offer. third parties on the same
terms.
Contracts accepted through the post

Theory Acceptance occurs when:

Declaration offeree has expressly stated acceptance.

theory:
Expedition theory: offeree posts letter of acceptance.

Reception theory: letter of acceptance reaches offeror’s address.

Information letter of acceptance reaches the mind of

theory: offeror (when letter is read).
 Offers which introduce special terms

All reasonable steps must be taken to ensure the

other party is made aware of the existence of special
terms:

• Signs and notices: Displayed in conspicuous

place or offeree’s attention drawn thereto.

• Tickets: Was the offeree aware, or should he or she

have been aware of the terms?

• Receipts: Terms and conditions printed on receipts

do not form part of the offer.
 Rules of offer and acceptance

Offer Acceptance

• Must be made to a defined • Must be absolute,

person, group of persons, or unambiguous and
the whole world correspond to the terms of
• Must be communicated to the offer
offeree • Must result in certain and
• Must seriously intend to definite terms
create legal obligations • Only the person to whom the
• Comes to end on rejection, offer is made may accept it
revocation or lapse • Must be communicated to
offeror
• Must be in a prescribed
manner
• Silence is not acceptance
 3.2 Serious intention

Principle of iusta causa:

• The intention to be bound

• Contracts must be based on a reasonable and
serous intention to be binding
 3.3 Reality of consent

Mistake

Misrepresentation
Factors which
exclude agreement
Duress

Undue influence
3.3.1 Mistake
A misapprehension of the existence or non-existence
of a fact.

Mistake

Mistake of Mistake in Mistake in Mistake of

law expression motive fact

Common Mutual Unilateral

mistake mistake mistake
3.3.2 Misrepresentation
A false statement of fact made by one person to
another.

Type Description Remedies

misrepresentation
Fraudulent Misrepresentation made • Specific performance
without an honest belief in • Cancellation
its truth, or with • Delictual damages
recklessness
Negligent Misrepresentation of a false • Specific performance
fact, made negligently • Cancellation
• Delictual damages

Innocent Misrepresentation of a false • Cancellation

fact, made innocently
3.3.3 Duress

A person was induced by violence, threat or fear to

enter into a contract

3.3.4 Undue influence

The weakening of a person’s resistance to make his or

her will pliable.
 3.4 Capacity to act

Refers to competence of subjects in the eyes of the law to:

• have rights and duties

• perform juristic acts

• incur civil or criminal liability for wrongdoing

• be a party to litigation
 3.4 Capacity to act

Factors affecting capacity

Juristic persons Natural persons
• Self-imposed • Minority
• Insolvency • Marriage
• Mental illness
• Intoxication
• Prodigality
• Insolvency
• Criminal conviction
• Alien enemy
 Contractual capacity of minors

Natural persons under the age of 18 are called

minors.

Age Capacity

Below 7 years No capacity to act

Between 7 and 18 years Limited capacity to act
Above 18 years Full capacity to act
Contractual capacity of minors

Instances where minors between 7 and 18 years can

enter into valid contracts:

• With the assistance of a guardian

• Married persons under 18 years of age

• Emancipation

• Ratification

• Statutory exceptions
Contractual capacity of minors

Remedies available to minors

Innocent minor Fraudulent minor
Entered into contract assisted by Minor pretended to have capacity:
guardian • Contract void
• Minor may apply to court to set • Minor is prevented from
contract aside obtaining restitutio in integrum
• Restitutio in integrum

Entered into contract without

assistance:
• Contract void
• Minor must return any money
or property received
Marriage and contractual capacity

Marriage in community of property

• Spouses have capacity to incur rights and obligations,

• Need consent for certain acts (limited capacity)
• Act void without necessary consent

Marriage out of community of property

• Both spouses have full contractual capacity

3.5 Certain and definite terms

Categories of uncertainty:

• Vague and indefinite language

• Failure to agree on material provisions

• Granting a party an unlimited choice whether or not to

perform

• Agreement to agree

• Indefinite duration

• An external mechanism is used to create certainty

 3.6 Lawfulness

Agreements between people should be recognised as

binding, and enforced by courts.

Factors affecting lawfulness

Statute Common law
An agreement is unlawful An agreement is unlawful
if it defeats the purposes if it is deemed to be
of the legislation. against public policy or
good morals.
 3.7 Possibility of performance

A contract must be physically and legally capable of being

performed.

For a person to escape liability, he or she must prove:

• Impossibility due to vis major or casus fortuitus

• Impossibility must be absolute

• Person claiming impossibility must, therefore, not be

responsible

• Impossibility must not have been foreseeable

 Categories of impossibility

Physical impossibility Legal impossibility

Objective impossibility: Types of legal impossibility:

• Impossible for anyone • Agreement to commit a
in the world to perform crime or delict
• Contract is void • Agreements contrary to
public policy
• Restraint of trade
agreements

Supervening impossibility: Enforcement of illegal

• Impossibility arises by contracts:
vis major or casus • Ex turpi causa-rule
fortuitus • Par delictum-rule
 3.8 Formalities

3.8.1 Formalities imposed by statute

May include:

• Reducing contract to written form

• Signed by the parties
• Notarial execution
• Registration
3.8.2 Self-imposed formalities

Creation of contract • Parties agree to reduce oral agreement in

writing
• Was their intention to merely have a written
record of the agreement?
• Did they intend that oral agreement is not
binding until reduced to writing and signed?
Variation of contract • Non-variation clause
Amendment of • May agree to amend any contract
contract • Unless agreed on non-variation clause
Cancellation of • Cancellation clause / Lex commissoria
contract
 Void and voidable contracts

Contract that is void Contract that is voidable

Nature Fatal defect and contract Flaw which entitles
never comes into existence. aggrieved party to choose to
treat it as valid or not
Examples Unlawful contracts or Agreements arising as a
agreements reached by result of misrepresentation
mistake. or duress
Legal Contract has no legal Contract is valid and
consequences existence. It creates no enforceable until it is set
rights and duties, as there aside by the aggrieved party
is no contract.
Enforcement Neither party can enforce Normal contractual and
and remedies contract. There are some delictual remedies may apply
common law remedies.
 4. INTERPRETATION OF
CONTRACTS

• Explicitly stated, in writing or verbally.

Express terms

Unexpressed terms
• Can also be incorporated by reference.

• Consensual tacit terms: Parties would

probably have expressed these terms if the
Tacit terms issue had been brought to their attention
• Imputed tacit terms: Terms are implied by
the court for fairness, policy or rule of law

• Duties imposed on parties by law.

Implied terms • Irrelevant if parties agreed on these terms.
 Parol evidence rule

• No oral evidence allowed to contradict, alter,

add to or vary written terms

• Exception: In cases of ambiguity

• Integration rule and interpretation rule

 Rule of interpretation

Presumptions of substantive law

• Parties have contractual capacity.

• Each party acts as principal and in his own name.
• Contract has no retrospective effect, etc.

Presumptions of interpretation
• Adhere to grammatical and ordinary meaning.
• Words should not be considered in isolation.
• Apply assumptions e.g. parties conducted themselves in good
faith.
 Conditional contracts

Conditions
Suspensive Resolutive
Performance is suspended until the Performance is enforceable until
occurrence of an uncertain future the occurrence of an uncertain
event. future event.

Casual Potestative Mixed

Possibility of future Fulfilment of the A combination of both
event happening condition is within casual and potestative
depends on something control of one or both features.
outside of parties’ of the parties.
control.
 Rectification

• Correction of a minor detail in a written contract if it

does not reflect the true intention of the parties.

• Add, delete, replace or correct terms.

• A new contract is not created.

 Unilateral and reciprocal contracts

Unilateral contract Reciprocal contract

Meaning Only one party has Both parties have duties.
duties.

Example Contract of donation Contract of sale

5. THIRD PARTIES TO CONTRACT

5.1
5.2
Stipulatio
alteri Assignment

5.3 5.4
Cession Delegation
 5.1 Stipulatio alteri

• Two parties: The promissory and promissee.

• Promissory and promissee may agree to keep an offer open

for a third party to accept.

• If third party accepts, promissee drops out of the picture.

• Contract will then be between the promissory and third party.

 Differences between agency
and stipulatio alteri

Agency Stipulatio alteri

Parties Principal, agent, and third party Stipulans, promissor,

and third party

Legal Principal and third party Stipulans, promissor and

relationship third party

Intention Agent acting on behalf of Stipulans concludes

principal contract in own name
 6. BREACH OF CONTRACT
Form of Repudiation Mora Mora Positive Prevention
breach debitoris creditoris malperfor- of
mance performance

Committed Either party Debtor Creditor Debtor Either party

by

Relates to Intention to Time for Time for Content of Possibility of

honour performanc performance performance performance
contract e

How Party shows Debtor fails Creditor fails Debtor Party makes
committed? intention not to perform to co- performs performance
to be bound on time operate on badly impossible
time
Is fault No: The test No Yes Sometimes Yes
required? is objective

Anticipatory Yes No No No Yes

 7. REMEDIES

Remedy Description

7.1 Specific performance To compel debtor to perform

7.2 Cancellation If a party repudiates the contract or

breaches an essential term, the
other party is entitled to cancel the
contract.
7.3 Damages Damages may be claimed on its
own or in conjunction with an order
for specific performance or
cancellation.
 Remedy Description
7.4 Interdict Order prohibiting a breach or potential
breach of contract

7.5 Declaratory order Where party is unsure about their rights in

terms of the contract

7.6 Penalty clauses Clause providing for payment of a sum of

money in event of breach of contract

7.7 Interest If a debtor fails to pay an amount by a

certain date the creditor can claim interest
on the outstanding amount
8. TERMINATION OF CONTRACT

8.1 Proper performance or payment

8.2 Unilateral termination by notice of termination

8.3 Release by waiver, discharge or cancellation

8.4 Novation (substitution of a new contract for the original one)

8.5 Merger where qualities of debtor and creditor coincide

8.6 Impossibility of performance

8.7 Set-off where each party is indebted to the other

8.8 Prescription (extinctive or acquisitive)

8.9 Insolvency and rehabilitation

8.10 Death of debtor or creditor

8.11 Rouwgeld clause

8.12 Cooling-off provisions in respect of certain contracts

9. THE EFFECT OF THE CONSTITUTION

• “The Constitution is the supreme law of the land and

all law and conduct must conform to the principles
contained in it”.

• “If a contractual term is against public policy, the

courts will not enforce such a term.”