LAW OF CONTRACT
SUMMARY NOTES
OCTOBER 2022
,1.1.1 Contract as an agreement intended to create enforceable obligations
-A contract is essentially an agreement between two or more parties, but not all agreements are
contracts
-Parties to social and domestic(jokes) agreements do not intend their agreement to give rise to
legally binding obligations. And the same holds true for agreements entered as a joke, or as part of a
play.
-The extra ingredient that distinguishes contracts from these non-binding agreements is thus 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. These agreements are intended by the parties to be binding on them in honour only,
and not in law.
-So too, when parties sign a ‘letter of intent’, or note that an agreement is ‘subject to contract’, they
are indicating that the agreement in question is not yet to be regarded as a legally binding contract.
-Whether or not the parties intended their agreement to be binding in law is a matter of fact to be
determined on all the available evidence. In some cases, the issue might be a difficult one to
determine, as when a father promises to buy his daughter a motor car should she pass her law
examinations
-Where a party lacks animus contrahendi, but leads the other party into the reasonable belief that he
or she does seriously intend to bind him or herself, the law will protect that reasonable belief and
uphold the contract, despite the absence of genuine agreement.
1.1.2 Legally binding agreements that are not contracts
-The fact that the parties seriously intend their agreement to have binding legal effect does not
necessarily mean that it is a contract. This is because not all binding agreements are contracts. Some
agreements are intended not to create obligations, but to destroy them, or to honour an obligation
by transferring rights.
-The following classification of legally binding agreements is important, and a valuable tool for
understanding the relationship between contract and the law of property (including cession):
•obligationary agreements, whereby one or more obligations are created.
•absolving agreements, whereby obligations are discharged or extinguished; and
•real (or transfer) agreements, whereby rights are transferred.
-Obligationary agreements are contracts, such as sale and lease.
A contract of sale, for example, obliges the seller S to transfer the thing sold to the purchaser P, who
is bound to pay the price. An agreement between S and P to cancel the sale would be an example of
an absolving agreement. Other examples would be an agreement by S to release P from her
obligation, or the payment by P of the price (payment being a bilateral juristic act). S’s obligation
would be fulfilled by transferring the ownership of the thing sold to P. Such transfer would take place
by traditio, which has both a physical element (delivery of the thing) and a mental element (the
concurring intentions on the part of S and P to transfer and to acquire ownership, respectively – the
, animus transferendi and the animus acquirendi). This mental element of traditio is a real or transfer
agreement, quite distinct from the obligationary agreement that is the underlying reason for the
transfer (the causa traditionis).
-Another example of a real agreement is cession.
Assume A has a right to claim money from B, arising from a contract or any other source of
obligation. A might sell that right to C. The sale of the right is a contract, or obligationary agreement
that obliges A to transfer the right to C. The sale itself does not transfer the right; that is achieved
by cession, which in theory is a separate agreement entailing concurring intentions: to transfer the
right on A’s part and to take transfer of it on C’s part.
1.1.3Legally binding agreements that are more than just contracts
-Some legally binding agreements that create obligations for the parties cannot be regarded merely
as contracts because they contain elements giving them another dimension altogether or elevating
them into a separate category.
-The most obvious example of such an agreement is marriage. Although it is based on the agreement
of the parties and gives rise to obligations such as the reciprocal duty of support, marriage can hardly
be treated like any other contract.
-Its primary purpose is not the creation of obligations, and many of the normal principles of the law
of contract do not apply to it. Thus, it cannot be made or unmade by the free exercise of the will of
the parties without the intervention of the State, and it has certain invariable consequences that
cannot be excluded by the parties. Marriage is accordingly best regarded as an agreement sui
generis giving rise to a relationship that confers on the parties a status of a public character.
-Another example is a judgment by consent.
Parties to litigation frequently conclude an agreement settling some or all the issues in dispute
between them and thereafter ask the court to give a judgment or to make an order that reflects the
terms of their agreement. Such a judgment or order, if the court acquiesces, has a dual character.
On the one hand, it is clearly a judicial act, with all the authority, force and effect of any other
judgment or order of the court. On the other, it remains in substance a contract of the parties, albeit
one of an elevated status because of the superimposition of the command of the court.5
-Agreements entered with public bodies or organs of state also present special difficulties because
they straddle the divide between public and private law.
-he relationship between the State in its various manifestations and the persons subject to it is
generally one of superior versus subordinate. However, when the State enters the commercial
domain and concludes contracts with its underlings, the playing fields are to a large extent levelled,
with the State generally (but not always) being treated in the same way as any other contracting
party. Sometimes it enjoys more favourable treatment (for example, when a statute confers upon a
Minister or other public official a discretion that must be exercised in the public interest, any
contractual provision that seeks to fetter that discretion will not be enforced).
-At other times, the State is treated less favourably than ordinary contracting parties, because its
contractual rights must yield before its public duties under the Constitution of the Republic of South
Africa, 1996.
