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PVL3702 Law of contract summary notes
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LAW OF CONTRACT NOTES:Contract as an agreement intended to create enforceable
obligations
A contract is an agreement between two or more parties.
The extra ingredient that distinguishes contracts from non-binding
agreements is a serious intention to create legally enforceable
obligations (animus contrahendi).
The absence of an animus contrahendi explains why ‘gentlemen’s
agreements’ are not enforceable as contracts.
Legally binding agreements that are not contracts:
The fact that the parties seriously intend their agreement to have a
binding legal effect does not necessarily mean that it is a contract.
1.1. Obligationary agreements (eg. Sale), whereby one or
more obligations are created
1.2. Absolving agreements, whereby obligations are
discharged or extinguished; and
1.3. Real (or transfer) agreements, whereby rights
are transferred.
Definition of a contract
A contact may be defined as an agreement entered into by two or
more persons with the intention of creating a legal obligation or
obligations. A further element exists – namely, that the agreement
should be one that the law recognizes as being binding on the
parties.
Requirements for a valid contract
Consensus: the minds of the parties must meet (or at
least appear to meet) on all material aspects of their
agreement;
capacity: the parties must have the necessary capacity
to contract;
formalities: where the agreement is required to be in certain
form (for example, in writing and signed), these formalities
must be observed;
legality: the agreement must be lawful – that is, not
prohibited by statute or common law;
possibility: the obligations undertaken must be capable of
performance when the agreement is entered into; and
, certainty: the agreement must have a definite or
determinable content, so that the obligations can
be ascertained and enforced.
The nature of a contract
A contract is a juristic act. The conclusion of a contract is bilateral or
multilateral. There must be at least two parties to an agreement.
A contract entails promises or undertakings on one or both sides.
Most contracts entail reciprocity.
Contract and the law of obligations
The law of contract forms part of the law of obligations.
Obligations – is a juristic bond i.t.o. which the party or parties on the
one side have a right to a performance and the party or parties on the
other side have a duty to render that performance.
In other words, it is a legal relationship between 2 or more legal subjects.
Sources of obligations are derived from the following:
(1) contract
(2) delict
(3) from other causes:
- Undue enrichment.
- Family relationships.
- Negotiorum gestio.
- Exercising of administrative authority.
There are as many obligations as there are indivisible
performances owing under the contract, and it is these
obligations which henceforth govern the relations between the
parties to the contract.
A distinction is made between civil (obligatio civilis) and natural
obligations (obligatio naturalis).
Civil obligation may be enforced directly by recourse to a court of law,
whereas a natural obligation may not.
However, a natural obligation does have some legal effect: it’s a legal
relationship as apposed to a moral relationship.
Void and voidable contracts
The fact that a contract is valid when it was concluded, however,
does not mean that it cannot be challenged subsequently.
,The contract may for example, be terminated because the
performance has become impossible or illegal; or one of the
contracting parties may cancel because of the other’s breach of
contract; or one of the parties may cancel the contract because of the
other’s misrepresentation, duress or undue influence.
So, too, a material mistake will have the result that a contract is void
(that is no contract comes into existence) since it excludes the basic
requirement for the existence of a contract, namely consent.
The concept of obligation
An obligation is a legal bond between two or more persons, obliging
the one (the debtor) to give, do, or refrain from doing something to or
for the other (the creditor) to demand a performance by the debtor,
and the duty of the debtor to make that performance.
The legal relationship created by an obligation is a personal one.
If the obligation is enforceable by action in a court of law it is referred to
as a civil obligation.
A natural obligation is unenforceable.
Theories of contract
The will theory, the basis of contract is to be found in the individual
will. Parties are bound by their contract because they have chosen to
be bound (subjective).
An objective approach to contract (declaration theory) is the polar
opposite of the will theory. The inner wills of the parties are irrelevant;
what is important for contract is not what the parties think but what
they say or do: the external manifestations of their wills.
A compromise theory is the reliance theory. The basis of contract is
to be found in detrimental reliance on the appearance of the
agreement; in the reasonable belief in the existence of consensus,
induced by the conduct of the other party.
Approach to contract: subjective or objective?
Smith v Hughes (1871) LR 6 QB
597. Pieters & Co v Salomon1911
AD121.
South African Railways & Harbours v National Bank of South Africa
Ltd 1924 AD 704.
Saambou-Nasionale Bouvereniging v Friedman1979 (3) SA 978 (A).
Steyn v LSAMotors Ltd 1994 (1) SA 49 (A).
, The Roman-Dutch writers adopted a subjective approach (animus
contrahendi and concursus animorum, or meeting of the minds).
English law has always preferred a more objective approach. Smith v
Hughes ‘if the parties are not ad idem, there is no contract.
If, whatever a man’s real intention may be, he so conducts himself that
a reasonable man would believe that he was assenting to the terms
proposed by the other party, and that the other party upon belief enters
into the contract with him, the man thus conducting himself would be
equally bound as if he had intended to agree to the other party’s
terms.’
Pieters & Co v Salomon the English approach.
When a man makes an offer in plain and unambiguous language,
which is understood in its ordinary sense by the person to whom it is
addressed, and accepted by him bona fide in that sense, then there
is a concluded contract. Any unexpressed reservations hidden in the
mind of the promissor are in such circumstances irrelevant. He cannot
be heard to say that he meant his promise to be subject to a
condition, which he omitted to mention, and of which the other party
was unaware.
Our law does permit escape from a contract on the grounds of
justifiable mistake; it does entertain claims for rectification of
contractual documents that incorrectly reflect the parties’ common
intention. It recognizes the importance of animus contrahendi in a
variety of contexts.
Saambou-Nasionale Bouvereniging v Friedman. ‘the true basis of
contractual liability in our law… is not the objective approach of the
English law, but is the real consensus of the parties.’
The decision in Steyn v LSA Motors Ltd illustrates that this is now the
accepted approach of our law.
Steyn, an amateur golfer, participated in a golf tournament that was
open to both amateurs and professionals. Next to the 17 th hole, there
was on display a new car and alongside it a board proclaiming: ‘Hole-
in-one prize sponsored by LSA Motors’. Steyn duly scored a hole-in-
one, but the sponsor refused to give him the car on the grounds that
the prize had only been intended for professional golfers. In the
litigation that followed, it became plain that the garage had never
intended to make any offer to an amateur such as Steyn, and that
there was accordingly no consensus between the parties. Steyn tried
to brush aside this fact with an argument that what was important was
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