PVL3702 – 2023
STUDY UNIT 1 THE NATURE OF CONTRACT
Although contracts are usually referred to as agreements, not every agreement is a contract: for an
agreement to be binding in law, it must comply with certain requirements.
legally enforceable obligations (animus contrahendi). The absence of an animus contrahendi
explains why ‘gentlemen’s agreements’ are not enforceable as contracts. 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.
As will be seen in due course, 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.
Legally binding agreements that are not contracts
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. In this regard, the following
classification of legally binding agreements is important:
- obligationary agreements, whereby one or more obligations are created, contracts, such as
sale and lease.
- absolving agreements, whereby obligations are discharged or extinguished, to cancel the
sale would be an example of an absolving agreement.
- real (or transfer) agreements, whereby rights are transferred.
Legally binding agreements that are more than just contracts = 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.
Definition of contract - In light of the discussion above, a contract may be defined as an agreement
entered into by two or more persons with the intention of creating a legal obligation or obligations.
Even if one or more of the requirements for validity are absent, so that the contract fails, it is
common practice to describe the agreement as ‘an invalid contract’.
Requirements for a valid contract
In order to be recognised as a valid and binding contract, the agreement must satisfy the following
requirements:
• 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, unusually, to be in a 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.
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The nature of contract - The conclusion of a contract is bilateral, or even multilateral. There must be
at least two parties to an agreement, and our law does not recognise a unilateral promise
(pollicitatio) as binding. Even where an agreement imposes obligations on only one of the parties, as
with the contract of donation, a meeting of two minds is required: the donor’s offer or promise to
donate must be accepted by the donee. The undertaking may be to give something ( dare); to do
something (facere); or to refrain from doing something (non facere). Alternatively, it may be an
undertaking that a certain state of affairs exists, or has existed (for example, that the car is a 2004
model, and that it has been serviced regularly); this is known as a warranty. Most contracts entail
reciprocity, in the sense that the one party’s performance is promised in exchange for the other
party’s performance by which is meant that something of value must be given or promised in return,
as a quid pro quo. Contracts forms the very basis of the free-market system. This flows from the fact
that there is freedom of contract, which means that parties can agree to anything that is possible
and lawful. All contracts are consensual, in the sense of being based on an agreement of some sort,
and are bonae fidei, in that the parties are required to conduct their relationship in a manner
consistent with good faith.
Contract and the law of obligations
The law of contract forms part of private law and, more particularly, the law of obligations.
The concept of obligation - An obligation is a legal bond (vinculum iuris) 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). If the obligation is enforceable by action in a court of law (as is usually the case),
it is referred to as a civil obligation, to distinguish it from the less common natural obligation. a debt
owed under a natural obligation may be set off against another debt; and if the debt, though
unenforceable, is nonetheless paid, it cannot be recovered in an enrichment action on the basis that
it was not owed. Gambling debts are said to fall into this category.
Contract and delict
A delict is wrongful and blameworthy conduct that causes harm to a person (for example,
defamation or negligent damage to property). Such conduct obliges the wrongdoer to compensate
the injured party.
Contractual obligations - are, as a general rule, voluntarily assumed by the parties themselves.
Delictual obligations - are imposed by law, irrespective of the will of the parties.
There is accordingly a close similarity between a breach of contract and a delict. Both are civil
wrongs giving rise, in appropriate circumstances, to a duty to pay damages as compensation. Indeed,
the same conduct might constitute both a delict and a breach of contract. The mere fact that the
conduct constitutes a breach of contract does not necessarily mean that the conduct is wrongful for
the purposes of imposing delictual liability – the conduct must infringe a right of the plaintiff that
exists independently of the contract. For example, if A contracts with B to supply a machine capable
of producing 5 000 bolts per hour, and the machine supplied produces only 3 000 bolts per hour,
there is a breach of contract, but no delict, because B has no right independently of the contract to
receive a machine that can produce 5 000 bolts per hour. But if the machine explodes and takes out
B’s eye, B may well have a claim in delict because the right not to be injured in one’s person as a
result of the negligence of another exists independently of any contract between the parties.
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Contract and enrichment
Unjustified enrichment occurs when there is a shift of wealth from one person’s estate to another’s
without a good legal ground or cause for this shift. It is important to emphasise that the enrichment
must be unjustified, in the technical legal sense of lacking a causa, rather than being unjust.
If injustice were the criterion, any enrichment arising from a harsh or unreasonable contract would
have to be returned; but that is not the law.
Provided that it is valid, a contract is a causa par excellence for any shift of wealth that flows from it.
On the other hand, where a party transfers an asset to another in performance of a contract that is
invalid for some reason, or that subsequently fails, the shift in wealth is sine causa, and one or other
of the enrichment actions will lie, depending on the reason for the failure of the contract.
Contract and the law of property
Property in the narrower sense denotes material things (corporeals), such as a book, a car or a farm.
property is not restricted to corporeal things, but includes also immaterial property (such as
copyright, patents and trademarks) and personal rights (whether arising from contract, delict or any
other source of obligations) (anything with monetary value). The contract is the underlying reason,
or causa, for the transfer of ownership that follows. If the contract happens to be invalid, there is no
just cause (iusta causa) for the transfer. Ownership will nonetheless pass because South African law
adheres to the abstract rather than the causal system of transfer. However, since ownership has
passed without a proper cause (sine causa), the transferor will generally have an enrichment action
to recover the property. This being merely a personal action, the transferor is at risk: if the
transferee goes insolvent before the property is returned, the transferor will not be able to get the
property back, and will have only a concurrent claim against the insolvent estate. When an estate is
insolvent, there are insufficient assets in the estate to meet the claims of all the creditors; after the
secured and preferent creditors have been paid, the balance of the estate, if any, is shared equally
among the concurrent (unsecured) creditors. The transferor might thus receive only a fraction of the
value of the property. Had ownership not passed, the transferor would have been able to recover
the property from the insolvent estate with a vindicatory action (rei vindicatio)
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What is required for transfer of ownership, therefore, is not a valid contract followed by delivery,
but the intention to transfer ownership on the part of the transferor and the intention to acquire
ownership on the part of the transferee at the time of delivery. Such an intention may be apparent
even from a void contract.
It is essential to note that South African law follows an abstract system of passing of ownership, so
that, even if an agreement is invalid, ownership in property may still be passed
STUDY UNIT 2 THE BASIS OF CONTRACT
Actual subjective agreement (consensus) - Actual subjective agreement (consensus ad idem) means
that the parties are in complete agreement regarding the important aspects of their contract; intend
their agreement to be binding in law; and are aware of each other’s intention in this regard. These
elements of consensus are very important not only for present purposes, but also for determining
whether one (or more) of the parties has laboured under a material mistake. However, even if a
material mistake has occurred, the parties may yet be liable on the basis of, for instance, the
reliance theory.
Genuine agreement presupposes an actual meeting of the minds of the parties (concursus
animorum). Subjective consensus of this nature exists when all the parties involved:
• seriously intend to contract;
• are of one mind (ad idem) as to the material aspects of the contract – namely, the terms of the
proposed agreement, and the identity of the parties to it; and
• are conscious of the fact that their minds have met .
Apparent or objective agreement -
As all too often happens, however, there may be some divergence between the true intention and
the expressed or perceived intention, with the result that the message sent or intended to be sent is
not the same as the message actually received. This divergence may be due to a hidden mental
reservation or due to some misunderstanding or mistake. There is dissensus rather than consensus,
and the question is whether any contract can have come into existence between the parties. In
these instances, there is no actual agreement to speak of, but, outwardly, it appears as if the party’s
reached consensus. Whether or not a legal system will uphold a contract in such circumstances
depends upon whether its approach to contract is wholly subjective (focused on an actual meeting
of minds) or, to some extent at least, objective (focused on the external appearance of agreement).
While most contracts are based on agreement, in the absence of true agreement, sometimes
contracts are still found to exist on an objective basis.
Theories of contract
- According to the will theory, the basis of contract is to be found in the individual will. The
parties are bound by their contract because they have chosen to be bound. Taken to its
logical conclusion, the will theory postulates an extremely subjective approach to contract:
consensus is the sole basis of contractual liability, with the result that if there is no genuine
concurrence of wills, there can be no contract. Thus, whenever a party is mistaken about a
material aspect of the proposed agreement, there is no binding contract – as will be the
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