Private Law 372: Law of Contract
Semester 1
1st Semester Focus: When Do We Have Valid Contract?
Course Overview Question:
1. A sends B an email in which she offers to sell B her used car for R120 000, plus an additional amount, which they
must still agree on, for the roof racks.
2. A also states in the email that the car is in a good condition.
3. B sends a WhatsApp message to A in which he states “Thanks for the email. It is fine”.
4. A delivers the car to B and B pays her the R120 000.
5. Two days after delivery, the car breaks down. It will cost R40 000 to repair.
6. It also transpires that B used the car to deliver drugs.
Is the contract valid?
Depending on your answer, what remedies are available to B?
1. Consensus?
Yes, there is consensus, they want to buy and sell a car, and the payment has been made as to the agreed amount. But,
no consensus on the roof rack issue.
Is there anything about the way in which consensus has been made which is problematic?
Consent obtained in an improper manner?
A made a representation over email to B that the car was in good condition – but the car broke down only 2 days after
the sale was made = an incorrect representation of reality
2. Formalities?
Can the agreement for the sale not be in writing? Yes, as long as there is consensus, there is no issue
3. Capacity?
Is the natural person of age? Company? Etc. [but will not deal with in this course]
4. Legality?
Contract must not be contrary to legislation or common law.
If A sells B the car with no knowledge of the illegality of his actions, shouldn’t affect the validity of his actions – but, if A
sold the car to B with the intention that he use the car for those purposes, then may affect validity
5. Possibility of performance?
You cannot agree to do something which is impossible to carry out.
The car can be delivered and the amount can be paid, so performance is possible
6. Certainty?
Is the content of the contract certain? No, the roof rack issue is an agreement to negotiate further
Assuming the contract was valid, what are B’s remedies?
Damages claim based on breach – amount would be R40 000 (the amount needed to repair the car)
Could alternatively claim that A repair the car
Could alternatively cancel the sale and restore the prior positions (return the car and claim back the money)
Where do we find protection/ remedies in legislation?
Consumer Protection Act – most powerful remedies available
Not worth litigating in HC/ MC
Better to find a remedy in the CPA
Would the CPA apply here? Not in this instance because A is not a supplier for the purposes of the Act
Motor Industry Ombudsman of South Africa (MIOSA) – will be the cheapest remedy under the CPA
Assuming that the CPA does apply, this is the most obvious and cheapest remedy
Only where A is a supplier in terms of the CPA
1
,1. Introduction
1.1 Key concepts
Definition of a contract: an agreement entered into by two or more persons with the intention of creating legal
obligations (or duties to perform something)
Agreement
- An agreement is not the same as a contract, and an agreement alone does not constitute a contract
- An agreement is the meeting of minds, to share a view or intentions, i.e. To have consensus
- Being in agreement will not automatically give rise to a contract (e.g. Can agree that the weather outside
is nice)
- The ingredient that makes an agreement a contract is the animus contrahendi – a serious intention to
create legally enforceable obligations
- Agreement can be actual (subjective) or apparent/ deemed (objective)
Actual agreement is the subjective view of consensus
Presupposes a meeting of the minds (concursus animorum)
When all parties involved seriously intend to contract, are of one mind as to the
material aspects of the contract, and are conscious of the fact that their minds have met
Apparent or deemed views of consensus are objective (as seen from outside)
E.g. standard terms displayed on the wall of the entrance to Ratanga Junction
E.g. signing the till slip
- Do you always need at least two parties?
Can have one natural person acting in two capacities – “wearing two hats”
E.g. Joe Soap the sole proprietor and Joe Soap as the natural person himself
E.g. Jane Deer as the agent of person X and Jane Deer as the natural person herself
“One brain”
Vaal Reefs Exploration & Mining Co Ltd v Burger 1999 (SCA): one natural person may act
on both sides of the agreement
Obligation
- Meaning of an obligation
Roman law: a bond between the parties (previously a physical bond)
Aimed at performance (give something, do something, pay something)
Off-beat Holiday Club v Sanbonani Holiday Spa Shareblock 2017 (CC):
[NB] Par 64: a legal obligation is “a juristic bond between two persons in terms of which
the one is legally bound as against the other to perform something. It is therefore a
relationship which entails on the one hand a person's right to performance by someone
else … and on the other hand another party's duty to perform. The performance which
forms the object of the right and the corresponding duty may consist in giving
something, in doing something or in not doing something. The holder of the right is
called a creditor and the other the debtor.”
Both parties to a contract are creditors and debtors
The person who must perform is the performance debtor, and the person who will
receive such performance is the performance creditor
E.g. Agreement to buy and sell a painting: seller under duty to deliver painting, but also
able to claim payment from the debtor, purchaser under duty to pay purchase price,
and able to claim delivery of painting
- Types of obligations
Civil: always enforceable (can go to court)
Swadif v Dyke: What is the effect of a judgment on a civil obligation? The traditional
view is that the judgment reinforces the obligation (makes it stronger)
- The court order strengthens it
2
, - To put into practical terms, it means that you can now rely on a 30-year
prescription period
Does the judgment make a new obligation? Is it novated?
- MV Ivory Tirupti: sometimes, maybe exceptionally, a judgment actually creates a
new obligation, a new cause of action
Natural: usually, if not always, unenforceable – but still has certain consequences
E.g. what if after the debt is prescribed (i.e. after you can no longer enforce the debt by
going to court), the debtor pays the money which was owed to the creditor? Can the
creditor keep the money? Yes, and the money cannot be claimed back through
unjustified enrichment, because there was still a natural obligation in existence and as a
basis for retaining the money
It is an obligation which can no longer be enforced, but which can still be fulfilled
Position with regard to wagering/ gambling debts?
- Certain gambling debts by legislation are valid and enforceable (especially those
that arise from licensed gambling activities, e.g. some forms of horse racing)
- Some obligations related to gambling are natural and not enforceable – Gibson
v van der Walt: (old case, heard before current position and current legislation)
some gambling debts are so immoral that they are unenforceable, and do not
have certain other features, e.g. cannot novate these immoral debts
Novation? To novate a debt is to create a new debt in place of the old
debt
Thus: immoral natural obligations cannot be novated
- Effect of obligation on third parties :
Privity of contract (that contracts are a private issue which only bind the parties to the contract)
not entirely true, contracts can also have effects on third parties
Thus, we do not uniformly enforce the privity principle
Doctrine of notice
Case of a double sale: If A sells something to B, and then sells it again to C, then if C had
knowledge of that transaction with B, C’s knowledge will be held against him
You may not knowingly interfere with contractual relationships – could be wrongful, and could
result in the commission of a delict
E.g. A shopping centre has an agreement of lease with one of its tenants to be the only
anchor tenant, and then the landlord concludes a second agreement for an anchor
tenant, and that second tenant knowingly interferes with the first contract
City of Cape Town v Khaya Projects 2016 (SCA): City of Cape Town has a contract with a
developer, the developer was supposed to develop housing and makes use of a sub-contractor
(Khaya). Houses are ultimately poorly constructed – who should the City claim against according
to the principle of privity of contract? The City was supposed to sue the developer (the party
with whom the contract was concluded). But the City argued that Khaya has a constitutional
obligation to build the houses properly, and that this constitutional obligation has been violated.
Contrasted to the SASSA debacle
- Court imposed constitutional obligations on Cash Pay Master Services – to carry
on performing in terms of the contract that they had, even after the contract
was terminated what they did was no longer in terms of the original contract
- Continuation of what used to be a contractual relationship, transformed now
into a constitutional obligation
In the Khaya case, the City offered no explanation as to why it was not suing its own
developers
The court held that they had a valid contract with the first developer, and that there
were no compelling constitutional grounds for them to sue the subcontractors – i.e.
Upheld privity of contract
3
, - Sources of obligations (of duties to perform): where does the law of contract fit into the legal system as
a whole?
The Law of Delict
A delict is wrongful and blameworthy conduct that causes harm to a person – such
conduct obliges the wrongdoer to compensate the injured party
Liable because you committed a wrong (civil wrong) – this liability arises automatically
But the boundaries are not always clear: e.g. Doctor operates on you, leaves a swab
inside you, and you fall ill because of an infection caused by the swab – contractual or
delictual liability?
- Has committed a delict because he acted negligently and caused you harm
- Has breached his contract with you to perform professional medical work
- Both areas of law could potentially apply, i.e. concurrent liability – but will the
victim have a choice, or will there be a clearly better option?
- The nature of the harm has an important role to play in determining whether
contractual or delictual remedies are available
The Law of Unjustified Enrichment
Automatically arising liability – liability doesn’t arise from consent or agreement, nor
does it arise from wrongful conduct
E.g. If someone overpaid money into your bank account – the duty to repay arises from
the principle of unjustified enrichment
Property Law
Distinction between personal rights and real rights is NB for the application of the law of
contract
- Real rights are enforceable against the whole world
- Personal rights are enforceable only against that specific person who granted
you the right
The contract is the understanding that some form of transaction is to take place and
sets out the terms thereof
The real agreement relates to the intention to transfer ownership (this is separate to the
contract itself)
Family Law
E.g. Marriage contract has very particular rights and duties which you would not
necessarily be able to enforce in court
E.g. Engagement contracts
Labour Law
Essentially applied contract law
Contract is fundamental to the labour relationship
Very important to, but largely distinct from
Corporate/ Company Law
Relationships are created and regulated by contract
E.g. members of a political party have a contractual relationship with the party
E.g. members of a stamp club contract to join the club
Will have particular rules governing themselves too
Position regarding auditors? They are required to be appointed by legislation, but the
relationship is still contractual
International Trade Law
Rules of different jurisdictions may apply if importing goods from overseas – e.g. goods
manufactured in Germany, shipped from Brazil, and arrive at Cape Town Harbour where
upon inspection it is determined that the goods are defective
- Question of which legal system then applies?
4
Semester 1
1st Semester Focus: When Do We Have Valid Contract?
Course Overview Question:
1. A sends B an email in which she offers to sell B her used car for R120 000, plus an additional amount, which they
must still agree on, for the roof racks.
2. A also states in the email that the car is in a good condition.
3. B sends a WhatsApp message to A in which he states “Thanks for the email. It is fine”.
4. A delivers the car to B and B pays her the R120 000.
5. Two days after delivery, the car breaks down. It will cost R40 000 to repair.
6. It also transpires that B used the car to deliver drugs.
Is the contract valid?
Depending on your answer, what remedies are available to B?
1. Consensus?
Yes, there is consensus, they want to buy and sell a car, and the payment has been made as to the agreed amount. But,
no consensus on the roof rack issue.
Is there anything about the way in which consensus has been made which is problematic?
Consent obtained in an improper manner?
A made a representation over email to B that the car was in good condition – but the car broke down only 2 days after
the sale was made = an incorrect representation of reality
2. Formalities?
Can the agreement for the sale not be in writing? Yes, as long as there is consensus, there is no issue
3. Capacity?
Is the natural person of age? Company? Etc. [but will not deal with in this course]
4. Legality?
Contract must not be contrary to legislation or common law.
If A sells B the car with no knowledge of the illegality of his actions, shouldn’t affect the validity of his actions – but, if A
sold the car to B with the intention that he use the car for those purposes, then may affect validity
5. Possibility of performance?
You cannot agree to do something which is impossible to carry out.
The car can be delivered and the amount can be paid, so performance is possible
6. Certainty?
Is the content of the contract certain? No, the roof rack issue is an agreement to negotiate further
Assuming the contract was valid, what are B’s remedies?
Damages claim based on breach – amount would be R40 000 (the amount needed to repair the car)
Could alternatively claim that A repair the car
Could alternatively cancel the sale and restore the prior positions (return the car and claim back the money)
Where do we find protection/ remedies in legislation?
Consumer Protection Act – most powerful remedies available
Not worth litigating in HC/ MC
Better to find a remedy in the CPA
Would the CPA apply here? Not in this instance because A is not a supplier for the purposes of the Act
Motor Industry Ombudsman of South Africa (MIOSA) – will be the cheapest remedy under the CPA
Assuming that the CPA does apply, this is the most obvious and cheapest remedy
Only where A is a supplier in terms of the CPA
1
,1. Introduction
1.1 Key concepts
Definition of a contract: an agreement entered into by two or more persons with the intention of creating legal
obligations (or duties to perform something)
Agreement
- An agreement is not the same as a contract, and an agreement alone does not constitute a contract
- An agreement is the meeting of minds, to share a view or intentions, i.e. To have consensus
- Being in agreement will not automatically give rise to a contract (e.g. Can agree that the weather outside
is nice)
- The ingredient that makes an agreement a contract is the animus contrahendi – a serious intention to
create legally enforceable obligations
- Agreement can be actual (subjective) or apparent/ deemed (objective)
Actual agreement is the subjective view of consensus
Presupposes a meeting of the minds (concursus animorum)
When all parties involved seriously intend to contract, are of one mind as to the
material aspects of the contract, and are conscious of the fact that their minds have met
Apparent or deemed views of consensus are objective (as seen from outside)
E.g. standard terms displayed on the wall of the entrance to Ratanga Junction
E.g. signing the till slip
- Do you always need at least two parties?
Can have one natural person acting in two capacities – “wearing two hats”
E.g. Joe Soap the sole proprietor and Joe Soap as the natural person himself
E.g. Jane Deer as the agent of person X and Jane Deer as the natural person herself
“One brain”
Vaal Reefs Exploration & Mining Co Ltd v Burger 1999 (SCA): one natural person may act
on both sides of the agreement
Obligation
- Meaning of an obligation
Roman law: a bond between the parties (previously a physical bond)
Aimed at performance (give something, do something, pay something)
Off-beat Holiday Club v Sanbonani Holiday Spa Shareblock 2017 (CC):
[NB] Par 64: a legal obligation is “a juristic bond between two persons in terms of which
the one is legally bound as against the other to perform something. It is therefore a
relationship which entails on the one hand a person's right to performance by someone
else … and on the other hand another party's duty to perform. The performance which
forms the object of the right and the corresponding duty may consist in giving
something, in doing something or in not doing something. The holder of the right is
called a creditor and the other the debtor.”
Both parties to a contract are creditors and debtors
The person who must perform is the performance debtor, and the person who will
receive such performance is the performance creditor
E.g. Agreement to buy and sell a painting: seller under duty to deliver painting, but also
able to claim payment from the debtor, purchaser under duty to pay purchase price,
and able to claim delivery of painting
- Types of obligations
Civil: always enforceable (can go to court)
Swadif v Dyke: What is the effect of a judgment on a civil obligation? The traditional
view is that the judgment reinforces the obligation (makes it stronger)
- The court order strengthens it
2
, - To put into practical terms, it means that you can now rely on a 30-year
prescription period
Does the judgment make a new obligation? Is it novated?
- MV Ivory Tirupti: sometimes, maybe exceptionally, a judgment actually creates a
new obligation, a new cause of action
Natural: usually, if not always, unenforceable – but still has certain consequences
E.g. what if after the debt is prescribed (i.e. after you can no longer enforce the debt by
going to court), the debtor pays the money which was owed to the creditor? Can the
creditor keep the money? Yes, and the money cannot be claimed back through
unjustified enrichment, because there was still a natural obligation in existence and as a
basis for retaining the money
It is an obligation which can no longer be enforced, but which can still be fulfilled
Position with regard to wagering/ gambling debts?
- Certain gambling debts by legislation are valid and enforceable (especially those
that arise from licensed gambling activities, e.g. some forms of horse racing)
- Some obligations related to gambling are natural and not enforceable – Gibson
v van der Walt: (old case, heard before current position and current legislation)
some gambling debts are so immoral that they are unenforceable, and do not
have certain other features, e.g. cannot novate these immoral debts
Novation? To novate a debt is to create a new debt in place of the old
debt
Thus: immoral natural obligations cannot be novated
- Effect of obligation on third parties :
Privity of contract (that contracts are a private issue which only bind the parties to the contract)
not entirely true, contracts can also have effects on third parties
Thus, we do not uniformly enforce the privity principle
Doctrine of notice
Case of a double sale: If A sells something to B, and then sells it again to C, then if C had
knowledge of that transaction with B, C’s knowledge will be held against him
You may not knowingly interfere with contractual relationships – could be wrongful, and could
result in the commission of a delict
E.g. A shopping centre has an agreement of lease with one of its tenants to be the only
anchor tenant, and then the landlord concludes a second agreement for an anchor
tenant, and that second tenant knowingly interferes with the first contract
City of Cape Town v Khaya Projects 2016 (SCA): City of Cape Town has a contract with a
developer, the developer was supposed to develop housing and makes use of a sub-contractor
(Khaya). Houses are ultimately poorly constructed – who should the City claim against according
to the principle of privity of contract? The City was supposed to sue the developer (the party
with whom the contract was concluded). But the City argued that Khaya has a constitutional
obligation to build the houses properly, and that this constitutional obligation has been violated.
Contrasted to the SASSA debacle
- Court imposed constitutional obligations on Cash Pay Master Services – to carry
on performing in terms of the contract that they had, even after the contract
was terminated what they did was no longer in terms of the original contract
- Continuation of what used to be a contractual relationship, transformed now
into a constitutional obligation
In the Khaya case, the City offered no explanation as to why it was not suing its own
developers
The court held that they had a valid contract with the first developer, and that there
were no compelling constitutional grounds for them to sue the subcontractors – i.e.
Upheld privity of contract
3
, - Sources of obligations (of duties to perform): where does the law of contract fit into the legal system as
a whole?
The Law of Delict
A delict is wrongful and blameworthy conduct that causes harm to a person – such
conduct obliges the wrongdoer to compensate the injured party
Liable because you committed a wrong (civil wrong) – this liability arises automatically
But the boundaries are not always clear: e.g. Doctor operates on you, leaves a swab
inside you, and you fall ill because of an infection caused by the swab – contractual or
delictual liability?
- Has committed a delict because he acted negligently and caused you harm
- Has breached his contract with you to perform professional medical work
- Both areas of law could potentially apply, i.e. concurrent liability – but will the
victim have a choice, or will there be a clearly better option?
- The nature of the harm has an important role to play in determining whether
contractual or delictual remedies are available
The Law of Unjustified Enrichment
Automatically arising liability – liability doesn’t arise from consent or agreement, nor
does it arise from wrongful conduct
E.g. If someone overpaid money into your bank account – the duty to repay arises from
the principle of unjustified enrichment
Property Law
Distinction between personal rights and real rights is NB for the application of the law of
contract
- Real rights are enforceable against the whole world
- Personal rights are enforceable only against that specific person who granted
you the right
The contract is the understanding that some form of transaction is to take place and
sets out the terms thereof
The real agreement relates to the intention to transfer ownership (this is separate to the
contract itself)
Family Law
E.g. Marriage contract has very particular rights and duties which you would not
necessarily be able to enforce in court
E.g. Engagement contracts
Labour Law
Essentially applied contract law
Contract is fundamental to the labour relationship
Very important to, but largely distinct from
Corporate/ Company Law
Relationships are created and regulated by contract
E.g. members of a political party have a contractual relationship with the party
E.g. members of a stamp club contract to join the club
Will have particular rules governing themselves too
Position regarding auditors? They are required to be appointed by legislation, but the
relationship is still contractual
International Trade Law
Rules of different jurisdictions may apply if importing goods from overseas – e.g. goods
manufactured in Germany, shipped from Brazil, and arrive at Cape Town Harbour where
upon inspection it is determined that the goods are defective
- Question of which legal system then applies?
4
