Law of contract
Unit 1 Introduction to the law of contract
Law of contract is part of the law of obligations.
Obligation is a juristic bond in terms of which the parties or party on the one side have the right to
a performance (creditor; personal right, claim or ius in personam) and the party on the other side
has a duty to perform (debtor).
Sources: ex contractu, ex delictu, ex variis causarum figuris like undue enrichment, family
relationships, negotiorum gestio and exercising administrative authority.
A contract is an agreement entered into with the intention of creating an obligation or obligations.
A juristic act is the lawful act of a legal subject which has at least some of the consequences that the
legal subject intended to bring about.
A legal fact is a fact or set of facts to which the law attaches consequences.
Performance is human conduct which may consist in someone’s doing something (facere) or not
doing something (non facere).
Civil and natural obligations, obligatio civilis and obligatio naturalis: civil may be enforced directly
by recourse to a court of law, the natural may not.
Legally relevant agreements are bilateral or multilateral juristic acts by which the parties cooperate
to achieve the intended consequences. A contract is an example.
Legally irrelevant agreements are agreements which have no legal consequences because the
parties did not intend to create legal consequences by their conduct. A dinner date is an example.
Legally relevant agreements:
1. agreements creating obligations; contracts
2. agreements extinguishing debts; like release or discharge
3. real agreements; an agreement whereby a right is transferred. Transfer by delivery, registration
or cession.
Requirements for a valid contract:
1. consensus (agreement)
2. capacity to act
3. performance must be possible at time contract is entered into
4. conclusion, performance and object must be lawful
5. constitutive formalities must be complied with
6. contents or consequences must be ascertained or be readily ascertainable
The mere fact that a void contract does not give rise to an obligations does not mean that it cannot
lead to the transfer of ownership through a valid real agreement. What is required for transfer of
ownership is intention to transfer and intention to acquire. This may be apparent even from a void
contract.
,Law of contract
Unit 2 Consensus
Two reasons why law will attach contractual liability to a contract: actual agreement of the
intention of the contracting parties and where this does not exist but one of the parties has a
reasonable reliance that it does. The will or intention as it is outwardly evidenced or manifested is
of the utmost importance when one has to decide whether a contract has come into existence and
what its terms are.
Two theories:
1. the will theory: notion that contracts are based on consensus; theory requires actual or conscious
consensus between contractants. Mistake will not lead to a contract.
2. the reliance theory: consensus is primary basis of contractual liability because in most cases
parties do actually correctly express their intentions. In the few cases where they fail, the erring
party is bound because of the fact that he has created a reasonable reliance in the mind of the
other that they have reached consensus. This is the secondary basis of contractual liability.
Consensus:
- unanimity between the parties as to consequences they wish to create: persons as well as content
- unanimity between the parties as to the fact that they wish to create juristic consequences:
intention to be bound, to be able to enforce. There must be more than merely a causa, there must
be justa causa: intention and a lawful object. Faked or simulated agreements will be void. Where
only one party has the intention to be bound, there is dissensus, but based on reliance theory
there may be a liability.
- awareness among parties of their unanimity: if the acceptance of an offer is never received, there
is no awareness. For true concursus animorum it is usually required that there is acceptance and
information that it is accepted.
Consensus is therefore when parties are unanimous about the consequences they wish to create
and have communicated this unanimity to each other by means of offer and acceptance made with
the intention of creating consequences by their actions.
Unit 3 Formation of the contract: the offer
An offer is a statement of intention in which a person (offeror) discloses to what performance, and
on what terms, he is prepared to bind himself to the person to whom the offer is addressed (the
addressee or offeree).
1. The content of the offer must set out the essential and material terms of the envisaged contract
clearly and in sufficient detail. If parties leave a term for later negotiation, there is no contract
created, but there are exceptions where parties can leave certain terms for later negotiation.
,Law of contract
2. The offer must contemplate acceptance and a resultant obligation. It must be a firm offer.
Whether a proposal amounts to an offer or merely constitutes an invitation to do business,
depends on the intention of the parties which must be ascertained from all circumstances of the
specific case. There is one special kind of advertisement which does constitute an offer, a promise
of reward.1
3. The offer must come to the attention of the offeree (addressee
4. An offer must as a rule be directed at a definite person or persons, although it may also be
directed at undefined persons. If at unascertained persons, it may be accepted by any one of them.
Example is a promise of reward or an auction.
In case of a simple auction, the bidder makes an offer which the auctioneer then considers and
either accepts or rejects. Mere making of a higher bid does not mean displacement per se.
Auction subject to conditions is different: conditions may relate to manner and time of payment,
the passing of ownership etc. Without reserve means that the article will be knocked down to the
highest bona fide bidder. With reserve, a reserve price is set, a minimum.
Conditions may be advertised beforehand and are not binding per se. There are two contracts
potentially: contract which bind to the conditions and the substantive contract of sale.
Once a bid is made, the auctioneer is bound to accept and the buyer is obliged to pay. Once the bid
is accepted, the contract of sale arises.
Another option is when the auctioneer offers to sell to the highest bidder, and every bid is then an
acceptance of the auctioneer's offer.
A contract is a bilateral juristic act. Obligations will not arise where an offer has been made but not
accepted.
An offer may lapse:
- After expiry or lapse of the prescribed time or of a reasonable time (facts of each case)
- Upon the death of either the offerer or the offeree
- Upon being rejected; a counter-offer or a conditional acceptance has the same effect
- Upon revocation; this must be brought to notice of the offeree before it can have any effect
Unit 4 Formation of the contract: acceptance, moment of formation, place and negotiations
Acceptance: an expression of intention by the offeree, signifying his assent to the proposal
embodied in the offer. Requirements for valid acceptance:
1. It must be unconditional and unequivocal; if not, it is a counter-offer
2. It must be accepted by the person to whom it was addressed, see Bird v Sumerville
3. The acceptance must be a reaction to the offer, see Bloom v American Swiss
4. The acceptance must comply with any formalities set by law or by the offeror, see Brand v Spies
1 Bloom v American Swiss Watch
, Law of contract
Theories when concluding contracts by post
Information theory: principle is that the primary basis for contractual liability is actual and
conscious agreement. Offeror must have been informed of acceptance before actual consensus has
been reached and the contract arises. General rule: an agreement is formed only when the
acceptance is communicated to the offeror, see Rex v Nel and Smeiman v Volkersz.
Exceptions:
1. Where the offeror expressly indicates otherwise
2. Where the offeror tacitly indicates otherwise; usually offeror indicates that he will consider
himself bound as soon as the offeree has complied with certain conditions, see Rex v Nel.
Another example is the advertisement offering a reward
3. Contracts concluded by way of letter or telegram; possible jurisprudential theories:
a. Declaration theory (uitingsteorie); agreement is concluded once offeree has expressed his
acceptance, when he has written his letter
b. Expedition theory (versendingsteorie); agreement is concluded as soon as he has posted his
letter of acceptance
c. Reception theory (ontvangsteorie); agreement when offeror receives the letter
d. Information theory (verneingsteorie); agreement is concluded only when offeror has been
informed, when he has read the letter.
Expedition theory
It was decided in Cape Explosives Works v SA Oil and Fat Industries that agreements entered into by
letter arise at the place where and at the moment when the letter of acceptance is mailed. Practical
obstacles as to prove the letter is received and read, as well as the reasonable measure of certainty
that the Post Office will deliver within reasonable time has lead to this.
Parties may determine beforehand at what stage the contract will be considered concluded. Only
when no express provision is made, does the rule apply.
Consequences of the expedition theory
Once posted, offeror may no longer revoke his offer and similarly, offeree may then no longer
revoke his acceptance. Should he try to recover his letter, he will in fact be guilty of breach of
contract.
Suggestion 1: application of the information theory in case of revocation of acceptance. Court in A
to Z Bazaars assumed that the expedition theory was adopted for protection of the offeree and
suggested that its operation may be neutralised ex post facto if the offeree withdraws a postal
acceptance by a speedier means of communication which reached offeror before acceptance.
Suggestion 2: fault should play a role where the letter of acceptance is delayed or lost in the post
The theory is at present not yet extended to agreements concluded by telex, telefax and e-mail.
Place of formation: where the last act necessary to constitute the agreement is performed.
Unit 1 Introduction to the law of contract
Law of contract is part of the law of obligations.
Obligation is a juristic bond in terms of which the parties or party on the one side have the right to
a performance (creditor; personal right, claim or ius in personam) and the party on the other side
has a duty to perform (debtor).
Sources: ex contractu, ex delictu, ex variis causarum figuris like undue enrichment, family
relationships, negotiorum gestio and exercising administrative authority.
A contract is an agreement entered into with the intention of creating an obligation or obligations.
A juristic act is the lawful act of a legal subject which has at least some of the consequences that the
legal subject intended to bring about.
A legal fact is a fact or set of facts to which the law attaches consequences.
Performance is human conduct which may consist in someone’s doing something (facere) or not
doing something (non facere).
Civil and natural obligations, obligatio civilis and obligatio naturalis: civil may be enforced directly
by recourse to a court of law, the natural may not.
Legally relevant agreements are bilateral or multilateral juristic acts by which the parties cooperate
to achieve the intended consequences. A contract is an example.
Legally irrelevant agreements are agreements which have no legal consequences because the
parties did not intend to create legal consequences by their conduct. A dinner date is an example.
Legally relevant agreements:
1. agreements creating obligations; contracts
2. agreements extinguishing debts; like release or discharge
3. real agreements; an agreement whereby a right is transferred. Transfer by delivery, registration
or cession.
Requirements for a valid contract:
1. consensus (agreement)
2. capacity to act
3. performance must be possible at time contract is entered into
4. conclusion, performance and object must be lawful
5. constitutive formalities must be complied with
6. contents or consequences must be ascertained or be readily ascertainable
The mere fact that a void contract does not give rise to an obligations does not mean that it cannot
lead to the transfer of ownership through a valid real agreement. What is required for transfer of
ownership is intention to transfer and intention to acquire. This may be apparent even from a void
contract.
,Law of contract
Unit 2 Consensus
Two reasons why law will attach contractual liability to a contract: actual agreement of the
intention of the contracting parties and where this does not exist but one of the parties has a
reasonable reliance that it does. The will or intention as it is outwardly evidenced or manifested is
of the utmost importance when one has to decide whether a contract has come into existence and
what its terms are.
Two theories:
1. the will theory: notion that contracts are based on consensus; theory requires actual or conscious
consensus between contractants. Mistake will not lead to a contract.
2. the reliance theory: consensus is primary basis of contractual liability because in most cases
parties do actually correctly express their intentions. In the few cases where they fail, the erring
party is bound because of the fact that he has created a reasonable reliance in the mind of the
other that they have reached consensus. This is the secondary basis of contractual liability.
Consensus:
- unanimity between the parties as to consequences they wish to create: persons as well as content
- unanimity between the parties as to the fact that they wish to create juristic consequences:
intention to be bound, to be able to enforce. There must be more than merely a causa, there must
be justa causa: intention and a lawful object. Faked or simulated agreements will be void. Where
only one party has the intention to be bound, there is dissensus, but based on reliance theory
there may be a liability.
- awareness among parties of their unanimity: if the acceptance of an offer is never received, there
is no awareness. For true concursus animorum it is usually required that there is acceptance and
information that it is accepted.
Consensus is therefore when parties are unanimous about the consequences they wish to create
and have communicated this unanimity to each other by means of offer and acceptance made with
the intention of creating consequences by their actions.
Unit 3 Formation of the contract: the offer
An offer is a statement of intention in which a person (offeror) discloses to what performance, and
on what terms, he is prepared to bind himself to the person to whom the offer is addressed (the
addressee or offeree).
1. The content of the offer must set out the essential and material terms of the envisaged contract
clearly and in sufficient detail. If parties leave a term for later negotiation, there is no contract
created, but there are exceptions where parties can leave certain terms for later negotiation.
,Law of contract
2. The offer must contemplate acceptance and a resultant obligation. It must be a firm offer.
Whether a proposal amounts to an offer or merely constitutes an invitation to do business,
depends on the intention of the parties which must be ascertained from all circumstances of the
specific case. There is one special kind of advertisement which does constitute an offer, a promise
of reward.1
3. The offer must come to the attention of the offeree (addressee
4. An offer must as a rule be directed at a definite person or persons, although it may also be
directed at undefined persons. If at unascertained persons, it may be accepted by any one of them.
Example is a promise of reward or an auction.
In case of a simple auction, the bidder makes an offer which the auctioneer then considers and
either accepts or rejects. Mere making of a higher bid does not mean displacement per se.
Auction subject to conditions is different: conditions may relate to manner and time of payment,
the passing of ownership etc. Without reserve means that the article will be knocked down to the
highest bona fide bidder. With reserve, a reserve price is set, a minimum.
Conditions may be advertised beforehand and are not binding per se. There are two contracts
potentially: contract which bind to the conditions and the substantive contract of sale.
Once a bid is made, the auctioneer is bound to accept and the buyer is obliged to pay. Once the bid
is accepted, the contract of sale arises.
Another option is when the auctioneer offers to sell to the highest bidder, and every bid is then an
acceptance of the auctioneer's offer.
A contract is a bilateral juristic act. Obligations will not arise where an offer has been made but not
accepted.
An offer may lapse:
- After expiry or lapse of the prescribed time or of a reasonable time (facts of each case)
- Upon the death of either the offerer or the offeree
- Upon being rejected; a counter-offer or a conditional acceptance has the same effect
- Upon revocation; this must be brought to notice of the offeree before it can have any effect
Unit 4 Formation of the contract: acceptance, moment of formation, place and negotiations
Acceptance: an expression of intention by the offeree, signifying his assent to the proposal
embodied in the offer. Requirements for valid acceptance:
1. It must be unconditional and unequivocal; if not, it is a counter-offer
2. It must be accepted by the person to whom it was addressed, see Bird v Sumerville
3. The acceptance must be a reaction to the offer, see Bloom v American Swiss
4. The acceptance must comply with any formalities set by law or by the offeror, see Brand v Spies
1 Bloom v American Swiss Watch
, Law of contract
Theories when concluding contracts by post
Information theory: principle is that the primary basis for contractual liability is actual and
conscious agreement. Offeror must have been informed of acceptance before actual consensus has
been reached and the contract arises. General rule: an agreement is formed only when the
acceptance is communicated to the offeror, see Rex v Nel and Smeiman v Volkersz.
Exceptions:
1. Where the offeror expressly indicates otherwise
2. Where the offeror tacitly indicates otherwise; usually offeror indicates that he will consider
himself bound as soon as the offeree has complied with certain conditions, see Rex v Nel.
Another example is the advertisement offering a reward
3. Contracts concluded by way of letter or telegram; possible jurisprudential theories:
a. Declaration theory (uitingsteorie); agreement is concluded once offeree has expressed his
acceptance, when he has written his letter
b. Expedition theory (versendingsteorie); agreement is concluded as soon as he has posted his
letter of acceptance
c. Reception theory (ontvangsteorie); agreement when offeror receives the letter
d. Information theory (verneingsteorie); agreement is concluded only when offeror has been
informed, when he has read the letter.
Expedition theory
It was decided in Cape Explosives Works v SA Oil and Fat Industries that agreements entered into by
letter arise at the place where and at the moment when the letter of acceptance is mailed. Practical
obstacles as to prove the letter is received and read, as well as the reasonable measure of certainty
that the Post Office will deliver within reasonable time has lead to this.
Parties may determine beforehand at what stage the contract will be considered concluded. Only
when no express provision is made, does the rule apply.
Consequences of the expedition theory
Once posted, offeror may no longer revoke his offer and similarly, offeree may then no longer
revoke his acceptance. Should he try to recover his letter, he will in fact be guilty of breach of
contract.
Suggestion 1: application of the information theory in case of revocation of acceptance. Court in A
to Z Bazaars assumed that the expedition theory was adopted for protection of the offeree and
suggested that its operation may be neutralised ex post facto if the offeree withdraws a postal
acceptance by a speedier means of communication which reached offeror before acceptance.
Suggestion 2: fault should play a role where the letter of acceptance is delayed or lost in the post
The theory is at present not yet extended to agreements concluded by telex, telefax and e-mail.
Place of formation: where the last act necessary to constitute the agreement is performed.
