UNIT 2
General principles of the law of contract
Concept of a Contract
A contract is an agreement which creates an obligation or obligations between the parties to
the agreement
The basic features of a contract include:
agreement as the basis of a contract
only agreements which create a legally binding obligation or obligations
there must be at least two parties to a contract
only persons privy to a contract are bound by it.
Section 1 of the Consumer Protection Act 68 of 2008:
‘‘agreement’’ means an arrangement or understanding between or among two or more
parties that purports to establish a relationship in law between or among them.
Concept of Legal Obligation:
An obligation consists of a right and a corresponding duty.
Legally, an obligation is a legal bond between two persons of which one person is bound
by law to render a performance to or for the other person.
In other words the debtor has a duty to render performance and the creditor has a right
to receive it.
A contract may create either of the two obligations namely unilateral obligation or
bilateral obligation.
Unilateral obligations
are those where one party only has rights in terms of the contract while the other only
has duties (however, both must still agree).
E.g: Stéfan donates R1000 to a local church.
Bilateral obligation
requires both parties to a contract to perform an action.
With bilateral obligations, both parties have rights and duties.
E.g: Abel and Bongi enter into a contract for the sale of Abel’s laptop to Bongi for R3000.
This contract creates two obligations, namely:
, Abel has the duty to deliver the laptop to Bongi, and Bongi has the right to receive the
laptop from Abel.
Abel is therefore the debtor for this obligation, and Bongi is the creditor.
Bongi has the duty to pay Abel R3000, and Abel has the right to receive the payment
from Bongi.
Bongi is therefore the debtor for this obligation, and Abel is the creditor.
Foundations of contract law
1. Freedom of contract
2. Sancity of contract
3. Good faith
4. Privity contract
Freedom of Contract
The freedom of individuals to enter into contracts with one another, on the terms that
they choose, without interference from the state
Sanctity of Contract (pacta sunt servanda)
Parties to a contract must comply with the terms of the contract
Good Faith (bona fides)
Parties to a contract must behave honestly and fairly
Privity of Contract
Rights created under a contract are enforceable only against the parties to the contract.
Theories of contract
1. Will
2. Declaration
3. Reliance
The consensual/will theory (subjective)
In terms of this theory, the parties are bound by a contract because they intended to be
bound to it.
They have freely chosen (out of their own will) to be bound to their agreement, and so
the law respects their choice by enforcing the contract.
For the parties to be bound, they must have had the same subjective intention to be
bound, i.e there must be consensus hence the theory is called the consensual theory.
Note: This theory therefore focuses on what the parties subjectively intended.
The declaration theory (objective)
, In terms of this theory, parties are bound by the contractual terms because they have
declared their intention to enter into a binding contract, usually in a formal way.
The focus is on the parties’ declarations, i.e what they said or did when they entered into
a contract.
Note: that the emphasis is on their conduct, viewed objectively.
What they really meant (their subjective mind) is ignored.
The reliance theory (objective-subjective)
The fact that a party can easily escape liability under the consensual theory may be
unfair to the other party because he/she has no way of reading the mind of the fellow
contractant.
The reliance theory has therefore been developed to protect a party who had a
reasonable belief that a contract is created between himself and the other party.
In terms of the reliance theory, if one party creates the impression that the parties had
reached consensus, and the other party reasonably relied on this impression, the parties
will be bound by the contract, even if there is no subjective consensus.
This theory is applied in South Africa.
Formation of the Contract
Requirements of a valid contract
In order for a contract to be valid and recognised, it must meet the requirements for
validity:
Consensus - agreement between the parties (offer and acceptance)
Contractual capacity
Legality/Lawfulness
Possibility of performance
Certainty
Formalities
Consensus
The core element of a contract is consensus or an agreement between two or more persons.
Consensus can only exist where:
The parties must have animus contrahendi (the serious and true intention to contract)
The respective wills/intentions of the parties must be identical.
There must be a creation of a legal obligation with legal consequences
Categories of consensus:
General principles of the law of contract
Concept of a Contract
A contract is an agreement which creates an obligation or obligations between the parties to
the agreement
The basic features of a contract include:
agreement as the basis of a contract
only agreements which create a legally binding obligation or obligations
there must be at least two parties to a contract
only persons privy to a contract are bound by it.
Section 1 of the Consumer Protection Act 68 of 2008:
‘‘agreement’’ means an arrangement or understanding between or among two or more
parties that purports to establish a relationship in law between or among them.
Concept of Legal Obligation:
An obligation consists of a right and a corresponding duty.
Legally, an obligation is a legal bond between two persons of which one person is bound
by law to render a performance to or for the other person.
In other words the debtor has a duty to render performance and the creditor has a right
to receive it.
A contract may create either of the two obligations namely unilateral obligation or
bilateral obligation.
Unilateral obligations
are those where one party only has rights in terms of the contract while the other only
has duties (however, both must still agree).
E.g: Stéfan donates R1000 to a local church.
Bilateral obligation
requires both parties to a contract to perform an action.
With bilateral obligations, both parties have rights and duties.
E.g: Abel and Bongi enter into a contract for the sale of Abel’s laptop to Bongi for R3000.
This contract creates two obligations, namely:
, Abel has the duty to deliver the laptop to Bongi, and Bongi has the right to receive the
laptop from Abel.
Abel is therefore the debtor for this obligation, and Bongi is the creditor.
Bongi has the duty to pay Abel R3000, and Abel has the right to receive the payment
from Bongi.
Bongi is therefore the debtor for this obligation, and Abel is the creditor.
Foundations of contract law
1. Freedom of contract
2. Sancity of contract
3. Good faith
4. Privity contract
Freedom of Contract
The freedom of individuals to enter into contracts with one another, on the terms that
they choose, without interference from the state
Sanctity of Contract (pacta sunt servanda)
Parties to a contract must comply with the terms of the contract
Good Faith (bona fides)
Parties to a contract must behave honestly and fairly
Privity of Contract
Rights created under a contract are enforceable only against the parties to the contract.
Theories of contract
1. Will
2. Declaration
3. Reliance
The consensual/will theory (subjective)
In terms of this theory, the parties are bound by a contract because they intended to be
bound to it.
They have freely chosen (out of their own will) to be bound to their agreement, and so
the law respects their choice by enforcing the contract.
For the parties to be bound, they must have had the same subjective intention to be
bound, i.e there must be consensus hence the theory is called the consensual theory.
Note: This theory therefore focuses on what the parties subjectively intended.
The declaration theory (objective)
, In terms of this theory, parties are bound by the contractual terms because they have
declared their intention to enter into a binding contract, usually in a formal way.
The focus is on the parties’ declarations, i.e what they said or did when they entered into
a contract.
Note: that the emphasis is on their conduct, viewed objectively.
What they really meant (their subjective mind) is ignored.
The reliance theory (objective-subjective)
The fact that a party can easily escape liability under the consensual theory may be
unfair to the other party because he/she has no way of reading the mind of the fellow
contractant.
The reliance theory has therefore been developed to protect a party who had a
reasonable belief that a contract is created between himself and the other party.
In terms of the reliance theory, if one party creates the impression that the parties had
reached consensus, and the other party reasonably relied on this impression, the parties
will be bound by the contract, even if there is no subjective consensus.
This theory is applied in South Africa.
Formation of the Contract
Requirements of a valid contract
In order for a contract to be valid and recognised, it must meet the requirements for
validity:
Consensus - agreement between the parties (offer and acceptance)
Contractual capacity
Legality/Lawfulness
Possibility of performance
Certainty
Formalities
Consensus
The core element of a contract is consensus or an agreement between two or more persons.
Consensus can only exist where:
The parties must have animus contrahendi (the serious and true intention to contract)
The respective wills/intentions of the parties must be identical.
There must be a creation of a legal obligation with legal consequences
Categories of consensus:
