KTR211- law of Contracts 211 – Exam Notes.
CHAPTER ONE
THE NATURE AND BASIS OF CONTRACT
THE NOTION OF CONTRACT
A contract is an agreement between two or more parties with a
legally bindingobligation(s) – animus contrahendi
Legally bindingagreements that are not contracts:
• Obligationary agreements – where obligations are created, i.e. sale and
• Absolving agreements – where obligations are canceled, i.e. settlement
• Real or transfer agreements – where rights are transferred, i.e. transfer
A cession (CH. 14) is an agreement to transfer a right. It constitutes all three types of
agreements. Rights are given/transferred but nothingis taken in return e.g. money.
A contract is between two/more parties i.e. a natural person and a
and a juristic person (company).
Can the state (government) be a party to a contract?
Yes, however they enjoy more favourable treatment and greater protection due
is a larger organization with much more control. The state is above contrac
principles of administrative justice apply.
In a sale contract, the buyer and the seller are both simultaneously
different performances.
Obligations:
• One-sided – one right and one duty (donation)
• Reciprocal – many rights and corresponding duties (contract of purchase
REQUIREMENTS FOR A VALID CONTRACT
2. Consensus – the minds of the parties must meet on all material aspe
3. Capacity – parties must have the necessary legal capacity to enter into
4. Legality – the contract must be legal/lawful; not prohibited by com
5. Formalities – all formalities must be complied with, i.e. in writing,sign
6. Possibility – obligations must be capableof performance when undertaken
7. Certainty – agreement must have definiteor determinable content
*A contract is only valid if all the requirements are met. There has
to exist. Both parties must have the same true intention.
THE NATURE OF CONTRACT
A contract is a juristic act that has legal consequences and entails perform
sides. Duty to:
• Give something (dare)
• Do something (facere)
• No do something (non facere)
It can either be bilateral or multilateral, but never unilateral (will), as
Most contracts entail reciprocity, whereby both parties have rights and duties i.e.
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,performance is promised in exchange for the other’s performance. Donations
where the agreement imposes obligations only on one party.
Freedom of contract means that parties are able to agree to anything that is
possible.
All contracts have to be based on good faith (bona fide).
CONTRACT AND THE LAW OF OBLIGATIONS
Primary sourcesof legal obligations:
• CONTRACT
• DELICT
• Unjustified enrichment
• Unauthorized administration/agency
• Family relationships
• Statute
A delict is wrongful and blameworthy conduct that causes harm to a
patrimonial loss/monetary loss or non-patrimonial loss).
• Claim for damages in contract – financial loss suffered as
• Claim in delict – injury to a person or property
• Concurrent liability – the plaintiff can sure on either basis (contract
A plaintiff that chooses to sue in delict must prove that all five
CONDUCT, FAULT, WRONGFULNESS, DAMAGES AND CAUSATION.
Not all delict is a breach of contract and not all breaches are
must always be satisfied.
Unjustified enrichment occurs when there is a shift of wealth from one person
with a good legal cause for that shift.
It is important to note that that enrichment must be unjustified in
Contract Delict Enrichment
Event giving Agreement to makeWrongful
the conduct Unjustified
that shift of
rise to the performance (to give,causes
do harm to wealth or an asset from
obligation or not do something)
another one estate to another
Content of the To make the promised To avoid causing To harm return the
obligation performance by wrongful conduct
enrichment
Nature of the Actual performance, or Compensation for Return of the
remedy compensation for non- harm caused enrichment
performance
Source of the Self-imposed Imposed by lawImposed by law
obligation
CONTRACT AND THE LAW OF PROPERTY
The law of property deals with the persons (legal subjects) and their
transfer thereof.
If a contract is invalid, there is no just cause for the transfe
according to South African law. If ownership is passed without a proper
use an unjustified enrichment action to recoverthe property. However, if
insolvent before the property is returned, the transferor cannot recoverthe
a concurrent claim against the insolvent estate.
If ownership had not passed, the transferor can recover the proper
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,action brought on by an owner to recoverpossession of property.
THE DEVELOPMENT OF THE MODERN NOTION OF CONTRACT
Common law refers to English law and Roman-Dutch law.
The law does not require a valid cause or reason for a contract to
contract is legal.
THE BASIS OF CONTRACT
Elements of consensus:
• Have a serious intention to contract
• Are of one mind regarding the material aspects of the agreement,
the agreement as well as the identities of all parties
• Are conscious/aware that consensus has been reached (their minds have
Consensus is reached through communication and negotiation in terms
the parties. Declarations can be in the form of words, conduct or silence.
analyzed as offer and acceptance.
Saambou-Nasionale Bouvereniging v Friedman
Communication occurs in three phases:
• The true intention of the communicator (A’s inner mind, the message
• The expressed intention of the communicator (A’s declaration of will,
• The perceived intention of what the receiver perceived the commu
belief or understanding of what A intended to say, message received
Whether a legal system decides to uphold a contract depends on which approach is used, the
subjective (focuses on the actual meeting of the minds) or objective (focuses on the external
appearance of the agreement). The choice of approach depends on why
person as being bound to the agreement.
The will theory(subjective approach) is based on the true intentions of
sole basis of contractual liability. If there is no consensus, there is
mistaken about a material aspect of the agreement, there is no binding
The declaration theory(objective approach) does not take into consideration the
the parties, but only what a party says and does. It ignores actual consensus
The reliance theory (CH. 3) protects a party’s reasonable expectation of
parties had not completed a contract, this theory protects a party belief
party to reasonably believe that consensus had been reached. i.e. if A
the contract, B can enforce that agreement if B can prove that
circumstances.
Theory Will theory Declaration theory Reliance theory
Basis of contract Consensus: concurring
Appearance of Belief in existence of
wills consensus: concurring
consensus induced by
declarations of wills
other party
Nature of contract Subjective Objective Semi-objective
Effect of mistake Contract fails Contract stands Contracts fails if
reliance unreasonable
Drawback Fails to protect Favours form over Merely a secondary
reasonable reliance substance basis for contract
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, Always follow the will theory, unless there is a difference in mind. Then the
In Smith v Hughes , the judge described the reliance theory as:
“If, whatever a man’s real intention may be, he so conducts himself
believe that he was assenting to the terms proposed by the other party,
that belief enters into the contract with him, the man thus conducting himself
as if he had intended to agree to the other party’s terms.”
If consensus is reached, the will theory (subjective approach) is used.
parties had not truly met, the reliance theory (objective approach) is applied
either party had led the other party into reasonable belief that consensus had
The onus of proving the existence of a contract rests on the
signed document serves as prima facie proof of the contract. The party contest
prove the error or mistake. And the party asserting that there is a
theory or the reliance theory (if will theory fails).
CORNERSTONES OF CONTRACT
Consensus and reliance are fundamental concepts of contract.
Other fundamental concepts:
• Freedom of contract – idea that people are free to decide whethe
terms to contract (party autonomy).
• Sanctity of contract – idea that contract enteredfreely and seriousl
necessary, enforced by the court (pacta sunt servanda)
• Good faith – parties to the contract must behave honestly and fairly
another
• Privity of contract – a contract creates rights and duties only for
a third party
Freedom of contract derivedfrom the Constitutional right to equality (s
Features of the classical model of contract law:
• Freedom and autonomy of parties – the license to give parties
desired results which will maximize their own and the society’s collective
• Minimal state intervention – to keep the parties involved to a
(and the courts) is to recognize and enforce the agreement reached
• Preference for clear and certainrules, rather than open-ended standards –
clear and simple, and which leave very little room for the exercise of
• Self-interested individualism – each party is interested in how to
from the agreement with no regard for the other party
• Discrete (once-off) event – a contract is a once-off agreem
cooperation from both parties
• Assumed fairness of the exchange – an agreement is reached
each party looks our for their own interests
Non-touchable companies/contracts:
• Standard contracts – non negotiable contracts, i.e. the same terms
everyone
• These contracts do not change
• Thus, no equal bargaining power
• E.g. virgin active contracts, MTN contracts
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