Class notes
Law of Contract Lecture Notes & Case Summaries
- Course
- Contract Law (PVL3005W)
- Institution
- University Of Cape Town (UCT)
Comprehensive Law of Contract lecture notes and case summaries for prescribed cases.
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Law of ContractIntroduction
- Definitions of ‘contract’:
o Hutchison & Pretorius: “An agreement between two or more persons with the intention of
creating a legal obligation or obligations.”
o Van Huyssteen et al: “An agreement will be a contract only if the parties intend to create
an obligations or obligations, and if the agreement complies with all other requirements
which the law sets.”
- Historical development:
o Roman Law
Law of CONTRACTS (plural)
Categories:
Real contracts: Created by agreement + delivery
Verbal contracts: Set phrases for contract to be valid
Literal contracts: Created by writing literal record of debt
Consensual contracts: Debated because of ex nudo maxim
If an agreement fell outside any of these, it was not valid.
Rules:
ex nudo pacto oritur actio: No right of action arises from a contract entered into
without consideration
Stricti iuris v bonae fidei:
o If concluded strici iuris: Had to follow certain form to be valid (e.g. verbal)
o If concluded bonae fidei: Only enforced if good faith dictated that they do so – value-
based
o RDL
No more strict distinctions between categories or between strici iuris and bonae fide
Basis for enforcement: GOOD FAITH
Pacta sunt servanda: All agreements entered into with requisite intent must be
enforced
All contracts were seen as consensual and bonae fidei
o Modern
Largely follows RDL rules + English influence
Good faith (RDL)
Contract Law must also reflect Constitutional values – fairness, equality etc.
Express constitutional imperative? No express imperative for contracts to abide by
Constitution, but MUST find in direct application (values, norms, ethos)
How will this be applied? Not much clarity – struggle between different courts and their
opinions on application
Customary law of contract? Rules of CL are dynamic, but there is a contracting system
through custom
- REQUIREMENTS FOR A VALID CONTRACT
o Consensus: “agreement” – no valid contract without agreement between relevant parties
“meeting of the minds”
o Capacity: Must have contractual capacity – legally able to enter into contract (major, of
sound mind etc.)
o Formalities: Must be complied with IF they are required
o Legality: Cannot contract for something illegal
, o Possibility: Object must be possible/realistic
o Certainty: Easily ascertainable
- Nature of contracts:
o They are a juristic act: Creates obligations
o Types of contracts:
Unilateral: Only one party is required to perform
Bilateral/multilateral: More than one party is required to perform
e.g. rental agreement
Reciprocal: Obligations are mutual – one is created in response to another
e.g. grocery shopping – must pay before taking stuff home
o What does “performance” refer to? A wide scope of human conduct – one party has a
right against another party so that the latter will conduct themselves in a particular way
Right to someone’s performance is PERSONAL
- Law of Obligations:
o “… a legal bond (vinculum iuris) between two or more persons, obliging one party…to
give, do or refrain from doing something to or for the other…” (H+P)
o Includes a right and a corresponding duty
o Sources of obligations?
o BRANCHES:
Contract and delict (civil relationships that create obligations)
Delict: Wrongful and blameworthy conduct which causes harm to another = repaired
through compensation
o Distinction from contract: Element of VOLITION – contract is based on
AGREEMENT, whereas a delict is a consequence of conduct
Similarities:
Both civil wrongs – both give rise to duty to compensate for damages
Concurrent liability: Same set of facts give rise to both a delictual and contractual
claim
Unjustified enrichment: No legal cause for shift of wealth
NOT “unjust enrichment”
Enriched party has an obligation to return enrichment
- Law of Property
o Property is not part of law of obligations
o Distinct from law of contracts: Contract is based on interpersonal relationships, whilst
property regulates relationship between legal subjects and legal objects
o Law of contract and property overlap in practice – e.g. in commercial transactions
- Basis/Theories of Contract
o All contracts are based on agreement = BUT: What constitutes such agreement?
Genuine “meeting of the minds” (consensus) OR appearance of agreement?
“Meeting of minds”: Seriously INTEND to contract; agree on terms and identity of
parties (material aspects); conscious of the fact that their minds have met on all
aspects
Appearance of agreement: One party truly believes that there is consensus and acts
on this belief, but other party did not have requisite intention, consensus
and/consciousness
Two bases in SA law:
Consensus
, o Will Theory: When consensus is the only basis of contractual liability – true intention
necessary
Subjective: Considers state of affairs of parties
Promotes party autonomy
Limitations exist: Single basis of contractual liability leaves room for somebody to
be disadvantaged
Still point of departure in SA law
Reasonable reliance (on appearance)
o Reliance Theory: Complements Will Theory by correcting it
Reasonable reliance on consensus: Contractual liability confirmed even if party did
not subjectively agree – reasonably relies on conduct of parties
Provides subsidiary basis, but can be used to protect a party’s interests
Application of theories in SA:
- Steyn v LSA Motors
o Facts: Steyn entered golf tournament and LSA Motors offered prize for tournament –
Steyn claimed that LSA offered car for hole-in-one to all participants – LSA: only
statement of offer to professional golfers
o Judgement: Intention and subjective/objective agreement
o Reason for disagreement: Relates to subjective perceptions and their intention based on
them (BOTHA J)
o Presence of consensus (will theory): No meeting of minds = no genuine consensus, so NO
contractual liability
BUT: Potential application of reliance theory – allows contractual liability despite no true
consensus = person alleging reliance must first show that other party created a
reasonable belief within them
Cornerstones of Contract
- Dual basis of contract: 1) Agreement/consensus + 2) Reasonable reliance (will and reliance
theory)
- Consensus and reliance are fundamental concepts in the law of contract, however
other fundamental ideas include:
o Freedom of contract: (i.e. party autonomy) notion that people are free to choose
whether, with whom and on what terms to contract.
o Sanctity of contract: (i.e. pacta sunt servanda) the notion that contracts that are
freely and seriously intended should be honoured and, if necessary, enforced by
the courts.
o Good faith: the idea that parties to a contract should behave fairly and honestly in
their dealings with one another.
o Privity of contract: this notion that a contract creates rights and duties only for
those who are party to the agreement, and not for third persons.
- Consensus and reliance speak to the technical bases upon which contractual
liability is founded, whereas these other ideas seem to be related to the nature of
values that inform the law of contract, and provide its ideological foundation.
- It thus important to note that these values compete at times and this competition
produces tensions in the law of contract.
, Goals of contract law:
- As a means of ensuring that people keep their promises as a matter of honour and
morality in society.
- In order to ensure that there is legal and commercial certainty by creating a
framework within which parties can safely transact and conduct business, with
peace of mind that all agreements seriously entered into will be enforced.
- Promoting fairness and reasonableness in contractual dealings by imposing
standards that encourage ‘good’ commercial behaviour, and that discourage
deception and over-reaching.
- In order to create a system of rules that will encourage private enterprise and
underpin the operation of the free market economy.
Competing values in the law of contract
̵ Contract law is concerned with sanctity of contract; however, this must be
balanced with fairness in contractual dealings.
̵ The notion of sanctity of contract is underpinned by the principle of freedom of
contract, and the philosophies of individualism and economic liberalism go hand
in hand with this.
̵ Where parties have the necessary contractual capacity, they must be free to
determine the contents of their contracts free of external control, and the role of
State is limited to enforcing agreements. The knowledge that contracts freely
and properly entered into will be enforced by the courts promotes legal and
commercial certainty – which is an essential feature for a free market economy.
As such the rules governing contract should be clear and precise.
̵ Contract law is also concerned, on the other hand, with fairness and good faith
in contractual relations which implies a degree of social control over private
business of contracting and promotes more communitarian values.
̵ Thus, even though parties are entitled to contract freely, this cannot be an
unbridled freedom where it cannot be expected that courts would enforce
agreements that are offensive to law, morals, public policy, or to broad
community notions of what is fair and reasonable.
̵ Thus there needs to be a balance struck which comes in the form of a value
judgment which will be different from person to person, and from community to
community; also these notions may change over time.
o Freedom of contract: Freedom to contract with somebody else (volition)
o Sanctity of contract: Contracts must be respected and upheld (pacta sur servanda)
Freedom + sanctity: Twin notions – developed out of classical law of contract (*see
characteristics)
Represent individualistic view of contract: Parties contracting act in their own best
interest
Each person’s individualism is respected, regardless of socio-economic status
Application: Strict application leads to exploitation of people who have weaker
bargaining power based on a number of factors (education, wealth, cross-border, access
to resources etc.)
Impact of current legal environment: Inequality in bargaining in consumer protection
was addressed by CPA – levels the playing field by limiting and regulation
No regulation for standard-form contracts
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