LAW OF CONTRACT NOTES:
Contract as an agreement intended to create enforceable obligations
A contract is an agreement between two or more parties.
The extra ingredient that distinguishes contracts from non-binding agreements is 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.
Legally binding agreements that are not contracts:
The fact that the parties seriously intend their agreement to have a binding legal
effect does not necessarily mean that it is a contract.
1.1. Obligationary agreements (eg. Sale), whereby one or more obligations
are created
1.2. Absolving agreements, whereby obligations are discharged or
extinguished; and
1.3. Real (or transfer) agreements, whereby rights are
transferred.
Definition of a contract
A contact may be defined as an agreement entered into by two or more persons with
the intention of creating a legal obligation or obligations. A further element exists –
namely, that the agreement should be one that the law recognizes as being binding on
the parties.
Requirements for a valid contract
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 to be in 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.
The nature of a contract
A contract is a juristic act. The conclusion of a contract is bilateral or multilateral.
There must be at least two parties to an agreement.
A contract entails promises or undertakings on one or both sides. Most
contracts entail reciprocity.
Contract and the law of obligations
The law of contract forms part of the law of obligations.
Obligations – is a juristic bond i.t.o. which the party or parties on the one side have a
right to a performance and the party or parties on the other side have a duty to render
that performance.
In other words, it is a legal relationship between 2 or more legal subjects.
Sources of obligations are derived from the following:
(1) contract
(2) delict
(3) from other causes:
- Undue enrichment.
- Family relationships.
- Negotiorum gestio.
- Exercising of administrative authority.
There are as many obligations as there are indivisible performances owing under the
contract, and it is these obligations which henceforth govern the relations between the
parties to the contract.
A distinction is made between civil (obligatio civilis) and natural obligations
(obligatio naturalis).
Civil obligation may be enforced directly by recourse to a court of law, whereas a
natural obligation may not.
However, a natural obligation does have some legal effect: it’s a legal relationship
as apposed to a moral relationship.
Void and voidable contracts
The fact that a contract is valid when it was concluded, however, does not mean that
it cannot be challenged subsequently.
,The contract may for example, be terminated because the performance has become
impossible or illegal; or one of the contracting parties may cancel because of the other’s
breach of contract; or one of the parties may cancel the contract because of the other’s
misrepresentation, duress or undue influence.
So, too, a material mistake will have the result that a contract is void (that is no
contract comes into existence) since it excludes the basic requirement for the
existence of a contract, namely consent.
The concept of obligation
An obligation is a legal bond 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) to
demand a 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.
If the obligation is enforceable by action in a court of law it is referred to as a civil
obligation.
A natural obligation is unenforceable.
Theories of contract
The will theory, the basis of contract is to be found in the individual will. Parties are
bound by their contract because they have chosen to be bound (subjective).
An objective approach to contract (declaration theory) is the polar opposite of the
will theory. The inner wills of the parties are irrelevant; what is important for contract
is not what the parties think but what they say or do: the external manifestations of
their wills.
A compromise theory is the reliance theory. The basis of contract is to be found in
detrimental reliance on the appearance of the agreement; in the reasonable belief in the
existence of consensus, induced by the conduct of the other party.
Approach to contract: subjective or objective?
Smith v Hughes (1871) LR 6 QB 597. Pieters & Co
v Salomon1911 AD121.
South African Railways & Harbours v National Bank of South Africa Ltd 1924 AD
704.
Saambou-Nasionale Bouvereniging v Friedman1979 (3) SA 978 (A). Steyn v
LSAMotors Ltd 1994 (1) SA 49 (A).
, The Roman-Dutch writers adopted a subjective approach (animus contrahendi and
concursus animorum, or meeting of the minds).
English law has always preferred a more objective approach. Smith v
Hughes ‘if the parties are not ad idem, there is no contract.
If, whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party, and that the
other party upon belief enters into the contract with him, the man thus conducting
himself would be equally bound as if he had intended to agree to the other party’s terms.’
Pieters & Co v Salomon the English approach.
When a man makes an offer in plain and unambiguous language, which is understood in
its ordinary sense by the person to whom it is addressed, and accepted by him bona fide
in that sense, then there is a concluded contract. Any unexpressed reservations hidden in
the mind of the promissor are in such circumstances irrelevant. He cannot be heard to
say that he meant his promise to be subject to a condition, which he omitted to mention,
and of which the other party was unaware.
Our law does permit escape from a contract on the grounds of justifiable mistake; it does
entertain claims for rectification of contractual documents that incorrectly reflect the
parties’ common intention. It recognizes the importance of animus contrahendi in a
variety of contexts.
Saambou-Nasionale Bouvereniging v Friedman. ‘the true basis of contractual
liability in our law… is not the objective approach of the English law, but is the
real consensus of the parties.’
The decision in Steyn v LSA Motors Ltd illustrates that this is now the accepted approach
of our law.
Steyn, an amateur golfer, participated in a golf tournament that was open to both
amateurs and professionals. Next to the 17th hole, there was on display a new car and
alongside it a board proclaiming: ‘Hole-in-one prize sponsored by LSA Motors’. Steyn
duly scored a hole-in-one, but the sponsor refused to give him the car on the grounds that
the prize had only been intended for professional golfers. In the litigation that followed, it
became plain that the garage had never intended to make any offer to an amateur such as
Steyn, and that there was accordingly no consensus between the parties. Steyn tried to
brush aside this fact with an argument that what was important was not the garage’s
intention but
Contract as an agreement intended to create enforceable obligations
A contract is an agreement between two or more parties.
The extra ingredient that distinguishes contracts from non-binding agreements is 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.
Legally binding agreements that are not contracts:
The fact that the parties seriously intend their agreement to have a binding legal
effect does not necessarily mean that it is a contract.
1.1. Obligationary agreements (eg. Sale), whereby one or more obligations
are created
1.2. Absolving agreements, whereby obligations are discharged or
extinguished; and
1.3. Real (or transfer) agreements, whereby rights are
transferred.
Definition of a contract
A contact may be defined as an agreement entered into by two or more persons with
the intention of creating a legal obligation or obligations. A further element exists –
namely, that the agreement should be one that the law recognizes as being binding on
the parties.
Requirements for a valid contract
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 to be in 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.
The nature of a contract
A contract is a juristic act. The conclusion of a contract is bilateral or multilateral.
There must be at least two parties to an agreement.
A contract entails promises or undertakings on one or both sides. Most
contracts entail reciprocity.
Contract and the law of obligations
The law of contract forms part of the law of obligations.
Obligations – is a juristic bond i.t.o. which the party or parties on the one side have a
right to a performance and the party or parties on the other side have a duty to render
that performance.
In other words, it is a legal relationship between 2 or more legal subjects.
Sources of obligations are derived from the following:
(1) contract
(2) delict
(3) from other causes:
- Undue enrichment.
- Family relationships.
- Negotiorum gestio.
- Exercising of administrative authority.
There are as many obligations as there are indivisible performances owing under the
contract, and it is these obligations which henceforth govern the relations between the
parties to the contract.
A distinction is made between civil (obligatio civilis) and natural obligations
(obligatio naturalis).
Civil obligation may be enforced directly by recourse to a court of law, whereas a
natural obligation may not.
However, a natural obligation does have some legal effect: it’s a legal relationship
as apposed to a moral relationship.
Void and voidable contracts
The fact that a contract is valid when it was concluded, however, does not mean that
it cannot be challenged subsequently.
,The contract may for example, be terminated because the performance has become
impossible or illegal; or one of the contracting parties may cancel because of the other’s
breach of contract; or one of the parties may cancel the contract because of the other’s
misrepresentation, duress or undue influence.
So, too, a material mistake will have the result that a contract is void (that is no
contract comes into existence) since it excludes the basic requirement for the
existence of a contract, namely consent.
The concept of obligation
An obligation is a legal bond 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) to
demand a 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.
If the obligation is enforceable by action in a court of law it is referred to as a civil
obligation.
A natural obligation is unenforceable.
Theories of contract
The will theory, the basis of contract is to be found in the individual will. Parties are
bound by their contract because they have chosen to be bound (subjective).
An objective approach to contract (declaration theory) is the polar opposite of the
will theory. The inner wills of the parties are irrelevant; what is important for contract
is not what the parties think but what they say or do: the external manifestations of
their wills.
A compromise theory is the reliance theory. The basis of contract is to be found in
detrimental reliance on the appearance of the agreement; in the reasonable belief in the
existence of consensus, induced by the conduct of the other party.
Approach to contract: subjective or objective?
Smith v Hughes (1871) LR 6 QB 597. Pieters & Co
v Salomon1911 AD121.
South African Railways & Harbours v National Bank of South Africa Ltd 1924 AD
704.
Saambou-Nasionale Bouvereniging v Friedman1979 (3) SA 978 (A). Steyn v
LSAMotors Ltd 1994 (1) SA 49 (A).
, The Roman-Dutch writers adopted a subjective approach (animus contrahendi and
concursus animorum, or meeting of the minds).
English law has always preferred a more objective approach. Smith v
Hughes ‘if the parties are not ad idem, there is no contract.
If, whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party, and that the
other party upon belief enters into the contract with him, the man thus conducting
himself would be equally bound as if he had intended to agree to the other party’s terms.’
Pieters & Co v Salomon the English approach.
When a man makes an offer in plain and unambiguous language, which is understood in
its ordinary sense by the person to whom it is addressed, and accepted by him bona fide
in that sense, then there is a concluded contract. Any unexpressed reservations hidden in
the mind of the promissor are in such circumstances irrelevant. He cannot be heard to
say that he meant his promise to be subject to a condition, which he omitted to mention,
and of which the other party was unaware.
Our law does permit escape from a contract on the grounds of justifiable mistake; it does
entertain claims for rectification of contractual documents that incorrectly reflect the
parties’ common intention. It recognizes the importance of animus contrahendi in a
variety of contexts.
Saambou-Nasionale Bouvereniging v Friedman. ‘the true basis of contractual
liability in our law… is not the objective approach of the English law, but is the
real consensus of the parties.’
The decision in Steyn v LSA Motors Ltd illustrates that this is now the accepted approach
of our law.
Steyn, an amateur golfer, participated in a golf tournament that was open to both
amateurs and professionals. Next to the 17th hole, there was on display a new car and
alongside it a board proclaiming: ‘Hole-in-one prize sponsored by LSA Motors’. Steyn
duly scored a hole-in-one, but the sponsor refused to give him the car on the grounds that
the prize had only been intended for professional golfers. In the litigation that followed, it
became plain that the garage had never intended to make any offer to an amateur such as
Steyn, and that there was accordingly no consensus between the parties. Steyn tried to
brush aside this fact with an argument that what was important was not the garage’s
intention but
