LU 1 - WHAT IS A CONTRACT?
An agreement entered into by 2 or more persons with the intention of
creating legal obligations.
Furthermore, the agreement should be one the law recognises as being
binding on the parties.
ANIMUS CONTRAHENDI – INTENTION TO CONTRACT
If a party lacks animus contrahendi and leads another party to believe that
he wishes to bind himself, the law favours the reasonable belief and
upholds the contract.
LEGALLY BINDING AGREEMENTS [NOT CONTRACTS]
NOT ALL BINDING AGREEMENTS ARE CONTRACTS
If parties intend the agreements to have a legally binding effect does not
necessarily mean that it is a contract
Examples include:
Obligationary Agreements: 1 or more obligations created [sale/lease].
Absolving Agreements: obligations discharged/extinguished [cancellation of sale/
lease].
Real [Transfer] Agreements: rights are transferred animus transferendi [intention
to transfer] and animus acquirendi [intention to acquire].
LEGALLY BINDING AGREEMENTS [MORE THAN CONTRACTS]
These are agreements that have other dimensions spanning different
categories e.g. marriage.
Based on agreement of parties and gives rise to obligations.
Normal rules of contract do not apply.
Agreement sui generis – confers status to parties of a public character.
Judgement by consent – dual character
Agreement with public bodies/Organs of state – divide between public and
private laws.
REQUIREMENTS/CHARACTERISTICS OF A VALID CONTRACT:
Consensus – meeting of the minds of the parties on all material aspects of
agreement.
Capacity – must have capacity to contract.
Formalities – where an agreement is required [written/orally] formalities must be
met.
Legality – agreement must be lawful – not prohibited by statute/common law.
Possibility – obligations undertaken must be capable of performance.
,Certainty – the agreement must have definite content, to establish obligations.
THE CONCEPT OF OBLIGATION
Obligation is a legal bond [vinculum iuris] between 2 or more persons
obliging one [debtor] to do or refrain from doing something for the other
[creditor].
Obligation has 2 components: a RIGHT and a CORRESPONDING DUTY.
There is a right for the creditor to demand performance by the debtor and
the duty of the debtor to make that performance.
The legal relationship created by an obligation is a personal one, binding
the parties to it.
The right created by the obligation is a personal right [ius in personam] as
opposed to a real right [ius in rem]
Obligations enforced by action to court are referred to as civil
obligations [obligationes civiles] as opposed to natural obligations
[obligations naturales] which is unenforceable but does have certain
legal consequences unlike moral obligations.
Primary sources of obligations come from the:
a. Laws of delict
b. Enrichment
c. Negotiorum gestio [unauthorised administration of another's affairs]
d. Family relationships
e. Wills and statutes
CONTRACT AND DELICT
Delict - wrongful and blameworthy act that causes harm to another.
The wrongdoer has to compensate the injured party.
Contract is voluntarily assumed by parties. Delict is imposed by
law, irrespective of parties will.
Parties may negotiate in terms of the contract.
Breach of the terms entail legal consequences such as damages. This duty
may originate from the parties will but is imposed by law as a
consequence of unlawful breach.
There is a close similarity between contract and delict, both are civil
wrongs giving rise to a duty to pay damages.
It is possible for the same conduct to constitute a delict and breach of
contract [CONCURRENT LIABILITY] , they can sue on either basis.
If a party elects to sue in terms of delict, he must prove each element of
the delict [wrongfulness]. The mere fact that there is a breach of contract,
does not mean that there will be delictual liability.
CONTRACT AND ENRICHMENT
Unjustified Enrichment – shift of wealth from one person's estate to
another without good legal ground/cause for such a shift.
, Enrichment must be made without cause [sine causa].
Enriched party – duty to restore – restitution.
Depoverished party must move an action to claim.
AGREEMENTS
All contracts are consensual [based on agreement].
Actual Subjective Agreement
A genuine agreement presupposes an actual meeting of the minds
[concursus animorum]
Subjective consensus exists when all parties:
i. Seriously intend to contract
ii. Are of one mind [ad idem] on material aspects of contract
iii. Are conscious of the fact that their minds have met.
Consensus – process of communication – parties declare their intent –
declaration must be expressed in words, conduct [some cases silence].
This process is analysed in terms of offer and acceptance.
Apparent/ Objective Agreement
Uncertainty can result because:
i. Hidden mental reservation of a party.
ii. Misunderstanding/mistake.
This results in dissensus [lack of meeting of minds] rather than consensus.
The contract therefore did not come into existence as contracts are
presupposed to be on agreement.
However, even though no actual agreement, there can be an objective
appearance of agreement through the conduct of 1 party which the other
has relied upon.
THEORIES OF CONTRACT
Will theory – basis of contract is the individual will of the parties. Parties bound
by contract because they have chosen to be bound.
Declaration theory – inner wills of the parties is irrelevant. What is important is
not what the parties think, but what they say or do [conduct]. Therefore the true
basis for contract is found in the concurring declaration of parties.
Reliance theory – basis of contract to be in detrimental reliance on the
appearance of the agreement.
DUAL BASIS OF CONTRACT IN MODERN LAW
Consensus
, Primary basis is consensus, to determine if contract is formed, did the
parties minds meet?
Point of departure – will theory, approach is subjective if consensus is
reached, the enquiry ends- don’t have to show why parties are bound.
Reliance
If there is no consensus, the enquiry goes one step further: look at
whether 1 party by words/conduct led the other into a reasonable belief
that consensus was reached.
If so, contract is upheld in terms of Reasonable Reliance.
If there is no mutual assent to contract, a contract can be found to be a
quasi-mutual assent.
The will theory is the point of departure but in the case of dissensus, an
application of the reliance theory is needed.
THE GOAL OF CONTRACT LAW IS FOR:
a. Parties to keep their promises [honour and morality]
b. Legal framework to transact provided done honestly and fairly, follow the
right procedures, law will uphold agreement and enforce it/
CORNERSTONES OF CONTRACT
Consensus
Reliance
Freedom of Contract
Parties are free to decide: contract or not to contract? With whom to
contract? What are the terms and conditions?
The creation is contract is a result of free choice, without influence and in
the process of contracting is the State.
If a court is satisfied that a contract is not immoral, illegal or contrary to
public policy IT SHOULD UPHOLD THE CONTRACT [pacta sunt servanda].
DOMINANT FEATURES OF THE CLASSIC MODEL OF CONTRACT:
Freedom and autonomy of parties.
Minimal state intervention.
A preference for clear and certain rules, rather than open ended
standards.
Self-interested individualism.
Assumed fairness of the exchange.
A discrete event.
The most pronounced development of freedom of contract is STANDARD
FORM CONTRACT – TAKE IT OR LEAVE IT NATURE.
An agreement entered into by 2 or more persons with the intention of
creating legal obligations.
Furthermore, the agreement should be one the law recognises as being
binding on the parties.
ANIMUS CONTRAHENDI – INTENTION TO CONTRACT
If a party lacks animus contrahendi and leads another party to believe that
he wishes to bind himself, the law favours the reasonable belief and
upholds the contract.
LEGALLY BINDING AGREEMENTS [NOT CONTRACTS]
NOT ALL BINDING AGREEMENTS ARE CONTRACTS
If parties intend the agreements to have a legally binding effect does not
necessarily mean that it is a contract
Examples include:
Obligationary Agreements: 1 or more obligations created [sale/lease].
Absolving Agreements: obligations discharged/extinguished [cancellation of sale/
lease].
Real [Transfer] Agreements: rights are transferred animus transferendi [intention
to transfer] and animus acquirendi [intention to acquire].
LEGALLY BINDING AGREEMENTS [MORE THAN CONTRACTS]
These are agreements that have other dimensions spanning different
categories e.g. marriage.
Based on agreement of parties and gives rise to obligations.
Normal rules of contract do not apply.
Agreement sui generis – confers status to parties of a public character.
Judgement by consent – dual character
Agreement with public bodies/Organs of state – divide between public and
private laws.
REQUIREMENTS/CHARACTERISTICS OF A VALID CONTRACT:
Consensus – meeting of the minds of the parties on all material aspects of
agreement.
Capacity – must have capacity to contract.
Formalities – where an agreement is required [written/orally] formalities must be
met.
Legality – agreement must be lawful – not prohibited by statute/common law.
Possibility – obligations undertaken must be capable of performance.
,Certainty – the agreement must have definite content, to establish obligations.
THE CONCEPT OF OBLIGATION
Obligation is a legal bond [vinculum iuris] between 2 or more persons
obliging one [debtor] to do or refrain from doing something for the other
[creditor].
Obligation has 2 components: a RIGHT and a CORRESPONDING DUTY.
There is a right for the creditor to demand performance by the debtor and
the duty of the debtor to make that performance.
The legal relationship created by an obligation is a personal one, binding
the parties to it.
The right created by the obligation is a personal right [ius in personam] as
opposed to a real right [ius in rem]
Obligations enforced by action to court are referred to as civil
obligations [obligationes civiles] as opposed to natural obligations
[obligations naturales] which is unenforceable but does have certain
legal consequences unlike moral obligations.
Primary sources of obligations come from the:
a. Laws of delict
b. Enrichment
c. Negotiorum gestio [unauthorised administration of another's affairs]
d. Family relationships
e. Wills and statutes
CONTRACT AND DELICT
Delict - wrongful and blameworthy act that causes harm to another.
The wrongdoer has to compensate the injured party.
Contract is voluntarily assumed by parties. Delict is imposed by
law, irrespective of parties will.
Parties may negotiate in terms of the contract.
Breach of the terms entail legal consequences such as damages. This duty
may originate from the parties will but is imposed by law as a
consequence of unlawful breach.
There is a close similarity between contract and delict, both are civil
wrongs giving rise to a duty to pay damages.
It is possible for the same conduct to constitute a delict and breach of
contract [CONCURRENT LIABILITY] , they can sue on either basis.
If a party elects to sue in terms of delict, he must prove each element of
the delict [wrongfulness]. The mere fact that there is a breach of contract,
does not mean that there will be delictual liability.
CONTRACT AND ENRICHMENT
Unjustified Enrichment – shift of wealth from one person's estate to
another without good legal ground/cause for such a shift.
, Enrichment must be made without cause [sine causa].
Enriched party – duty to restore – restitution.
Depoverished party must move an action to claim.
AGREEMENTS
All contracts are consensual [based on agreement].
Actual Subjective Agreement
A genuine agreement presupposes an actual meeting of the minds
[concursus animorum]
Subjective consensus exists when all parties:
i. Seriously intend to contract
ii. Are of one mind [ad idem] on material aspects of contract
iii. Are conscious of the fact that their minds have met.
Consensus – process of communication – parties declare their intent –
declaration must be expressed in words, conduct [some cases silence].
This process is analysed in terms of offer and acceptance.
Apparent/ Objective Agreement
Uncertainty can result because:
i. Hidden mental reservation of a party.
ii. Misunderstanding/mistake.
This results in dissensus [lack of meeting of minds] rather than consensus.
The contract therefore did not come into existence as contracts are
presupposed to be on agreement.
However, even though no actual agreement, there can be an objective
appearance of agreement through the conduct of 1 party which the other
has relied upon.
THEORIES OF CONTRACT
Will theory – basis of contract is the individual will of the parties. Parties bound
by contract because they have chosen to be bound.
Declaration theory – inner wills of the parties is irrelevant. What is important is
not what the parties think, but what they say or do [conduct]. Therefore the true
basis for contract is found in the concurring declaration of parties.
Reliance theory – basis of contract to be in detrimental reliance on the
appearance of the agreement.
DUAL BASIS OF CONTRACT IN MODERN LAW
Consensus
, Primary basis is consensus, to determine if contract is formed, did the
parties minds meet?
Point of departure – will theory, approach is subjective if consensus is
reached, the enquiry ends- don’t have to show why parties are bound.
Reliance
If there is no consensus, the enquiry goes one step further: look at
whether 1 party by words/conduct led the other into a reasonable belief
that consensus was reached.
If so, contract is upheld in terms of Reasonable Reliance.
If there is no mutual assent to contract, a contract can be found to be a
quasi-mutual assent.
The will theory is the point of departure but in the case of dissensus, an
application of the reliance theory is needed.
THE GOAL OF CONTRACT LAW IS FOR:
a. Parties to keep their promises [honour and morality]
b. Legal framework to transact provided done honestly and fairly, follow the
right procedures, law will uphold agreement and enforce it/
CORNERSTONES OF CONTRACT
Consensus
Reliance
Freedom of Contract
Parties are free to decide: contract or not to contract? With whom to
contract? What are the terms and conditions?
The creation is contract is a result of free choice, without influence and in
the process of contracting is the State.
If a court is satisfied that a contract is not immoral, illegal or contrary to
public policy IT SHOULD UPHOLD THE CONTRACT [pacta sunt servanda].
DOMINANT FEATURES OF THE CLASSIC MODEL OF CONTRACT:
Freedom and autonomy of parties.
Minimal state intervention.
A preference for clear and certain rules, rather than open ended
standards.
Self-interested individualism.
Assumed fairness of the exchange.
A discrete event.
The most pronounced development of freedom of contract is STANDARD
FORM CONTRACT – TAKE IT OR LEAVE IT NATURE.
