Theme 3 Contracts

1. Theme 3 Contracts LAW OF CONTRACT – DEFINITION ,BASIC CONCEPTS and CONSENSUS

2. Objectives • 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

3. Definition • 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.

4. Requirements for the conclusion of a contract • 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.

5. Basic concepts • 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: • Only one obligation is created between the parties in terms of which only one unilateral delivery of performance must be made, eg. Donation. • Reciprocal contracts: • Where parties to the contract act simultaneously in the capacities of both debtor and creditor, eg. Sale. • Nominate contracts: • 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.

6. Essentialia • Essential minimum characteristics toidentify it as a nominate contract or distinguish it from other contracts. • Naturalia • 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. • Incidentalia • Additional terms and conditions which the parties wish to include, as well as any express incidentalia that limit/change/exclude any of the naturalia. • Contracts which are null and void • 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.

7. LAW OF CONTRACT - CONSENSUS • 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.

8. 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.

9. 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.

10. The Offer • 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.

11. 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 obligation It 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.

12. 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.

13. The Acceptance • 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.

14. Time and place of the conclusion of contract • 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.

15. 4 Theories • 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

16. Reception theory When 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

17. Specific offers • 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.

18. Contents of the Contract • 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

19. 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.

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21. Consensus continued... Contractual Capacity

22. Factors influencing Consensus • 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

23. Error • 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.

24. 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.

25. 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.

26. Misrepresentation • A false statement of fact made either expressly or tacitly. This can be done intentionally or negligently. • Contracts = voidableif 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.

27. Remedies • 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: • Actioquantiminoris – price reduction is claimed for damaged due to misrepresentation. If buyer wished to continue with the contract. • Actioredhibitoria – prejudiced party claims full restitution and damages.

28. Duress • 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 – visabsoluta (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. viscompulsiva (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.

29. Undue influence • 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.

30. Contractual Capacity • 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.

31. Natural and Juristic persons • 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 viresvs ultra vires) • A juristic person acts through a representative or organs, which are always natural persons.

32. Persons without Contractual Capacity • 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.

33. 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.

34. Persons with limited Contractual capacity • 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.

35. Contracts binding upon minors • 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.

36. 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.

37. Restitutio in integrum • 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.

38. Contracts not binding upon minors • 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.

39. Married Persons • 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.

40. 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.

41. Other persons with limited contractual capacity • 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.

42. Persons with full contractual capacity • Has full contractual capacity to perform juristic acts.

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