The Law of Contract Formation of a valid contract Consensus
ad idem (‘meeting idem (‘meeting of minds’)
“[A]n agreement agreement between two t wo or more parties which creates legally binding and enforceable rights and duties between them.” Law 2006: 52] [Basic Principles of Business Law 2006: Waheeda Amien, 2010 2 010
1
Formation of a valid contract
Binding vs non-binding contract
Offer
Acceptance
Waheeda Amien, 2010 2 010
2
Formation of a valid contract
Binding vs non-binding contract
Offer
Acceptance
Waheeda Amien, 2010 2 010
2
Formation of a valid contract
Contractual capacity = legally competent
Those who lack / have ltd contractual capacity:
Minors
Persons married in community of property
Insolvency
Mental incapacity
Waheeda Amien, 2010 2 010
3
Minors
Unmarried + under age of 18 years
No / ltd contractual capacity (CC)
Under seven years = no CC
Between seven + 18 need parental assistance = ltd CC
Assisted contracts vs unassisted contracts Waheeda Amien, 2010
4
Assisted contracts Children
born outside wedlock
Consent of mother required unless: o
father was in ermanent life artnershi with mother at the time of child’s birth; or
o
father acknowledged child + contributed to child’s maintenance
Waheeda Amien, 2010
5
Assisted contracts Parental
consent = express / tacit
Factors indicating tacit emancipation:
age
living arrangements
relationship between minor + parents
Waheeda Amien, 2010
6
Assisted contracts
Minors can escape liability if:
contract was induced by misrepresentation, duress or undue influence
other party committed material breach of contract; or
contract is inherently prejudicial
Waheeda Amien, 2010
7
Assisted contracts
Remedy if contract is inherently prejudicial = restitution in integrum
to restore status quo ante
Waheeda Amien, 2010
8
Unassisted contracts
Limping contract
Election of minor’s parents to ratify / repudiate contract
Repudiation of contract by minor within three years of attaining majority
Waheeda Amien, 2010
9
Married Persons
Married in community of property
Ltd CC
Sale / mortgage of immovable property
Sale of shares, stocks + bonds
Sale of household furniture
Contracts with less onerous implications Waheeda Amien, 2010
10
Insolvency
Ltd CC
Insolvent estate administered by trustee
Contract without trustee’s permission = voidable at election of trustee
Waheeda Amien, 2010
11
Mental incapacity arising from mental illness or intoxication
No CC
Presumption that every person is of sound mind and has necessary CC must be disproved
Waheeda Amien, 2010
12
Agreement / Consensus Offer
= proposal by person making the offer
(offeror makes proposal to offeree) = assen
y o eree o
e erms
contained in the offer
Valid contract = valid offer + valid acceptance Waheeda Amien, 2010
13
Requirements for valid offer Offer must be:
1. Complete, clear + unambiguous 2. Made with intention of creating legally binding obligations 3. In existence at the time that it is accepted
Waheeda Amien, 2010
14
Offer must be complete, clear + unambiguous
Offer must contain all material terms on which
Otherwise, contract = void for vagueness
Waheeda Amien, 2010
15
Offer must be made with intention of creating legally binding obligations Following proposals are not valid offers:
r Social arrangements Gentleman’s agreements Most advertisements (except offers for reward)
Waheeda Amien, 2010
16
Offer must be made with intention of creating legally binding obligations
To determine if proposal is not made with intention to create legally binding obligations, r will n i r:
Surrounding circumstances Precise details of proposal; and How a reasonable person would have interpreted the proposal
Waheeda Amien, 2010
17
Offer must be in existence at the time that it is accepted
Offer ceases to exist when it is:
Rejected by offeree (outright or with counter-offer) Revoked / withdrawn by offeror Lapsed (in terms of stipulated time period / after reasonable time)
Waheeda Amien, 2010
18
Requirements for valid acceptance Acceptance must be: 1. . 3. 4. 5.
Made by person to whom offer was addressed Clear, unambiguous + unconditional Corresponding with the terms of the offer Communicated to the offeror
Waheeda Amien, 2010
19
Acceptance must be made by person to whom offer was actually addressed
Bird v Summerville and another 1961 (3) SA 194 (A)
Waheeda Amien, 2010
20
Acceptance must be made deliberately / consciously
Offeree must know of existence of offer when purporting to accept it
Waheeda Amien, 2010
21
Acceptance must be clear, unambiguous + unconditional
A offers to give B the option to buy / sell various properties for R100 000. B accepts the offer to buy / sell the properties for R100 000.
A offers to sell her car to B for R30 000. B accepts the offer on the condition that the car passes a roadworthy test.
Silence constitutes acceptance where there is a duty on the offeree to reject the offer expressly. Waheeda Amien, 2010
22
Terms of acceptance must correspond with the terms of the offer
Mirror image of each other r
r
=r
+
u
r-
r
Incomplete / partial acceptance
Waheeda Amien, 2010
23
Acceptance must have been communicated to the offeror
Offeror must receive acceptance
Exceptions to above rule:
When offeree is instructed to communicate acceptance but cannot through no fault of her own When offeree is instructed to give notice of acceptance but offeror makes it impossible for that to happen
Waheeda Amien, 2010
24
Options
Contract where grantor undertakes to keep offer open to grantee for specified period of time
Main offer Option offer
May be ceded Waheeda Amien, 2010
25
Remedies for breach of option
Interdict + damages for losses; or
Damages to place yourself in position you upon; or
Damages to place yourself in position had breach not occurred Waheeda Amien, 2010
26
Right of first refusal
Grantor agrees that should she decide to enter into a contract, she will offer contract to grantee or accept offer by grantee before contracting with anyone else.
Waheeda Amien, 2010
27
Remedies for breach of right of first refusal
Damages; or
Unilateral declaration of intent; or
Interdict
Waheeda Amien, 2010
28
Online contracting (electronic commerce)
Electronic Communications and Transactions Act 25 of 2002 (ECT Act)
Regulation of Interception of Communications and Provision of Communication-related Information Act 36 of 2006 (RIC Act) Waheeda Amien, 2010
29
Online contracting (electronic commerce)
Advanced electronic signature
Automated transactions … make use of an
Click-wrap agreements
Browse-wrap agreements
Waheeda Amien, 2010
30
Click-wrap agreements Click on: □
□
“I agree” “I agree to be bound by the terms and conditions”
Waheeda Amien, 2010
31
Browse-wrap agreements
“the use of this website is subject to our standard terms and conditions”
S11(3) ECT Act: reasonable person
Common law – standard type contracts
Waheeda Amien, 2010
32
Supplier obliged to disclose following information for electronic transactions: 1. 2. 3. 4.
Supplier’s full name + legal status Supplier’s physical address + telephone no Su lier’s website + email addresses Membership of any self-regulatory / accreditation body to which supplier belongs + contact details of that body 5. Code of conduct to which supplier subscribes + how to access it electronically 6. Supplier’s registration numbers, names of its office bearers + place of registration Waheeda Amien, 2010
33
7. Physical address where supplier will receive legal service of documents 8. Description of goods + services offered to enable the consumer to make an informed decision 9. Full price of goods / services, including transport, taxes + other fees / costs 10. Manner of payment 11. ny terms o agreement, nc u ng guarantees t at w apply to the transaction and how those terms may be accessed, stored + reproduced electronically by consumers 12. Time within which the goods will be dispatched / delivered / within which the services will be rendered Waheeda Amien, 2010
34
13. Manner + period within which consumers can access + maintain a full record of the transaction 14. Return, exchange + refund policy of the supplier 15. Any alternative dispute resolution code to which the supplier subscribes + how it may be accessed by the consumer 16. Security procedures + privacy policy of the supplier in , + information 17. Minimum duration of the agreement in the case of agreements for the supply of products / services to be performed on an ongoing basis 18. Rights of consumers in respect of the cooling off period, where applicable. Waheeda Amien, 2010
35
Supplier obliged to enable consumer to:
Review the contract;
Correct any errors; and
Withdraw prior to finalising the contract
Failing which, consumer may cancel contract within 14 days of receiving goods / services
Waheeda Amien, 2010
36
Further obligations of supplier:
Supplier must execute order placed within 30 days of receiving the order, failing which, consumer may cancel contract within 7 days by written notice
Supplier must utilise secure payment system, failing which consumer can sue for damages
Provide consumer with the opportunity to unsubscribe from a mailing list
If requested, supplier must provide details of where + how consumer’s personal information was obtained Waheeda Amien, 2010
37
Cooling off period
Automatic right of consumer to cancel contract within seven days of receipt of goods / services
Available if consumer cannot rely on breach of 18 disclosure rules / cannot access three entitlements of consumers Waheeda Amien, 2010
38
Cooling off period does not apply to:
Financial services Auctions Foodstuffs + beverages for everyday use Customised goods fluctuations Newspapers, books + periodicals Audio, video / software products that have been unsealed Gambling Accommodation, transport, catering + leisure services for a specified date / time period Waheeda Amien, 2010
39
Factors that can taint / prevent the conclusion of a valid contract
1. Mistake (void contract) 2. Misrepresentation (voidable contract) 3. Duress / undue influence (voidable contract)
Waheeda Amien, 2010
40
Mistake
Common mistake nil
r l mi
k
Mutual mistake
Waheeda Amien, 2010
41
Material mistake
Nature of the contract m
r f h
nr
When the identity of the other party matters
Waheeda Amien, 2010
42
Mistake is not material if it relates to:
Quality / characteristic of the subject matter
P r ’ m iv
When identity of other party is not relevant to the party’s ability to perform
Waheeda Amien, 2010
43
Reasonable mistake (iustus error )
Reasonable reliance
Caveat subscriptor
Waheeda Amien, 2010
44
Misrepresentation
Expressly
Conduct
Silence where there is a duty to disclose information
Waheeda Amien, 2010
45
Misrepresentation
Causal
Incidental
Fraudulent
Negligent
Innocent Waheeda Amien, 2010
46
Distinguish misrepresentation from:
Warranty
a e me n o o p n o n
Puff
Waheeda Amien, 2010 2 010
47
Relationship between misrepresentation and mistake
If mistake is material = contract will be void for mistake
If mistake is not material = contract could be voidable on the basis of misrepresentation Waheeda Amien, 2010 2 010
48
Duress
Where one party threatens, coerces / intimidates another to enter into a contract
Undue influence
Persuasion is subtle
Waheeda Amien, 2010 2 010
49
Legality
Contracts that are:
illegal;
immoral legally
/ contrary to public policy; and/or
impossible = invalid + unenforceable
Waheeda Amien, 2010
50
Statutory illegality
Act of parliament
Absolute prohibition
Relative prohibition
Void contract depending on intention of Parliament Waheeda Amien, 2010
51
Common law illegality
Void because contra bonos mores / contrary to public policy
Waheeda Amien, 2010
52
Effects of contracts that are void for Illegality
Unenforceable
Nullity
Restitution if one party is not equally guilty or if in the interests of justice
Waheeda Amien, 2010
53
Severing invalid terms
If invalid terms are capable of being severed = contract remains valid
Subsidiary?
Integral?
Consider purpose of contract + whether purpose can be achieved in absence of invalid terms Waheeda Amien, 2010
54
Contracts in restraint of trade
Self-standing
Form part of existing contract
Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)
Waheeda Amien, 2010
55
Possibility of performance
Objectively impossible = void
Physical / legal
Casus fortuitus
Vis maior
Initial + supervening impossibility
Waheeda Amien, 2010
56
Formalities
Sale of immovable property + credit agreements: Writing Signed
by both parties
Failing above:
contract for immovable property = void credit agreement = valid but criminal
Waheeda Amien, 2010
57
Formalities
Ante-nuptial contracts: Writing Signed
by both parties
Notary
public
Registration
in deeds office within three months of
marriage
Failing above:
ANC = valid but marriage in community of property
Waheeda Amien, 2010
58
Contents of a contract
Terms
Express
Implied =
+
Clauses
Provisions that do not give rise to rights + obligations
Waheeda Amien, 2010
59
Express terms
Articulated verbally or in writing
Standard type contracts
Caveat subscriptor rule
Unsigned documents e.g. tickets, notices
Exclusionary / exemption / disclaimer clauses
Waheeda Amien, 2010
60
Exclusionary / exemption / disclaimer clauses
Central South African Railways v McLaren
Durban’s Water Wonderland (Pty) v Botha
1999 (1) SA 982 (SCA) Waheeda Amien, 2010
61
Implied terms
Residual terms / naturalia (implied by operation of law)
Tacit terms (implied by fact)
Implied by trade usage Waheeda Amien, 2010
62
Residual terms / naturalia
Apply to contracts of sale, lease, agency etc.
Re ulated b
Do not apply to franchise + distribution agreements
Waheeda Amien, 2010
articular bod of law
63
Residual terms / naturalia Examples:
A buyer in a contract of sale is obliged to pay the purchase price even though the goods were damaged / destroyed while in the possession + under the control , damage / destruction of the goods.
A lessee in a contract of lease only needs to pay the rental in arrear (at the end of the lease period) rather than at the beginning of the lease period. Waheeda Amien, 2010
64
Tacit terms
Parties’ intention
‘Curious bystander’ test
West Witwatersrand Areas v Roos 1936 AD 62 Voigt Ltd v South African Railways 1933 CPD 4
Waheeda Amien, 2010
65
Terms implied by trade usage
Customs of particular trades / industries Coutts v Jacobs 1927 EDL 120
Usa e must:
be generally known within trade or industry; be clear; be reasonable; + not conflict with common law + statutory law
Waheeda Amien, 2010
66
MEMORANDUM OF AGREEMENT entered into between: Shalin Naidu of 25 Ernest Road, Rylands Estate (hereinafter called ‘the seller’) and Raeesa Suliman of 12 High Level Road, Sea Point (hereinafter called ‘the purchaser’) WHEREBY IT IS AGREED AS FOLLOWS: 1. Sale and purchase The seller hereby sells to the purchaser who hereby purchases the seller’s 1996 Toyota Tazz (hereinafter referred to as ‘the Goods’). 2. Price The purchase price for the Goods shall be the sum of R50 000.00 (Fifty thousand rand). Signed by the seller at Rylands Estate this 1st day of March 2008. Shalin Naidu ------------------------------Signed by the purchaser at Rylands Estate this 1st day of March 2008. Raeesa Suliman -------------------------------
Waheeda Amien, 2010
67
Common contractual terms
Conditions Time terms Warranties Cancellation clauses Penalty clauses No variation clauses
Waheeda Amien, 2010
68
Conditions A condition is a provision in a contract which
“makes the o eration or continued o eration of the whole or part of the contract dependent on the happening of an uncertain future event.”
Waheeda Amien, 2010
69
Conditions
Not terms
Suspensive
Resolutive
Question is whether / not stipulated event / undertaking will happen Waheeda Amien, 2010
70
Suspensive conditions Example:
Condition in a contract of sale of immovable property
“This agreement is subject to the condition that the Purchaser’s application for a loan be approved by 20 June 2010, upon the security of a mortgage bond over the property, by a Financial Institution, for the sum of R1 million.” Waheeda Amien, 2010
71
Resolutive conditions Example:
Condition in a divorce agreement
“,
,
wife maintenance until she remarries or dies.”
Waheeda Amien, 2010
72
Time terms Examples:
I will pay you R1 million on 01 December 2008
I will pay you R1 million when you die
Question is when stipulated event will happen Waheeda Amien, 2010
73
Warranties
Express confirmation of the truth of a particular fact in the contract
Forms part of the contract =
Distinguish between warranty + misrepresentation: Petit v Abramson (II) 1946 NPD 673
Waheeda Amien, 2010
74
Exclusionary / exemption / disclaimer clauses
Courts interpret restrictively
Barnard v Protea Assurance Co Ltd t/a Pretoria Assurance 1998 (3) SA 1063 (C)
Waheeda Amien, 2010
75
Cancellation clauses
Parties give themselves the right to cancel a contract for non-material breaches
Example: Clause in lease agreement “If the monthly rental or other amounts due in terms of this lease are not paid on due date or if the tenant commits any other breach of this lease, the landlord shall be entitled to cancel this lease.” Waheeda Amien, 2010
76
Penalty clauses
Example: Clause in building contract “The contractor / builder shall be liable to pay a penalty of R500 per day to the client for the number of days the work remains incomplete beyond 01 June 2010.”
Waheeda Amien, 2010
77
No variation clauses
Example:
“No variation to the contract will be of an force and effect unless the variation has been reduced to writing and signed by both parties.”
Waheeda Amien, 2010
78
Disagreement on terms of a contract
Could arise when terms of the written contract are ambiguous / does not accurately reflect the parties’ prior negotiations
Legal principles to assist:
Parol evidence rule
Rectification
Waheeda Amien, 2010
79
Parol evidence rule
Forms part of the law of evidence
Court must only consider written document
No oral evidence allowed
Exce tions to above:
Where agreement is partly verbal + partly written
Where written terms are vague / incomplete / ambiguous
Waheeda Amien, 2010
80
Rectification
Application to court to rectify written contract
Applicant bears the onus of proving that the document is inaccurate + how it should be corrected to accurately reflect the parties’ agreement
Waheeda Amien, 2010
81
Breach of contract Types of breaches 1. Mora debitoris 3. Repudiation 4. Positive malperformance 5. Prevention of performance
Waheeda Amien, 2010
82
Mora debitoris “Delay, without lawful excuse, of performance of a contractual duty; in other words mora is wrongful failure to perform timeously.”
Two elements:
Performance must be due + possible Obligation must be enforceable
Waheeda Amien, 2010
83
Mora creditoris “Delay (or refusal) on the part of the creditor to render such assistance as the law requires of him in cooperating with the debtor to enable him (the debtor) to perform.”
Breach of a time term by the creditor
Two elements:
Performance is due Debtor tenders proper performance
Waheeda Amien, 2010
84
Repudiation
Rejection of contractual obligations
Examples: 1. Seller informs urchaser she has decided to kee the goods 2. Employee fails to report for duty and starts employment elsewhere
Anticipatory breach Waheeda Amien, 2010
85
Repudiation Typical expressions: “I will not” “I would like to but I cannot” “Please cancel the order”
Waheeda Amien, 2010
86
Positive Malperformance
Defective performance
Two types: a) Incomplete / defective (substandard) b) Where debtor does something that the contract prohibits her from doing
Waheeda Amien, 2010
87
Prevention of performance
Impossibility caused by a party to the contract
Scenario 1: Performance is not possible as a result of the actions of the debtor e.g. debtor is a chauffeur and she loses her driver’s licence as a result of a drunk driving conviction Waheeda Amien, 2010
88
Prevention of performance
Scenario 2: Performance by the debtor is prevented by the actions of the creditor e.g. chauffeur (debtor) tenders performance (arrives at work) but her employer destroys the vehicle that she is required to drive.
Waheeda Amien, 2010
89
Remedies for breach of contract
Declaration of rights
Specific performance
Cancellation
Damages
Waheeda Amien, 2010
90
Declaration of rights
High Court application
To obtain clarit re ardin obli ations and rights under a contract
Waheeda Amien, 2010
91
Specific performance
Mandatory interdict
Prohibitory interdict
Clear right Injury / well founded fear that injury will be committed No other remedy exists
Waheeda Amien, 2010
92
Specific performance
Court has discretion to grant order: Haynes v King William’s Town Municipality
1951 (2) SA 371 (A)
Waheeda Amien, 2010
93
Specific performance
Exceptio non adimpleti contractus :
Motor Racing Enterprises (Pty) Ltd (in liquidation) v
1996 (4) SA 950 (A) BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A)
Waheeda Amien, 2010
94
Cancellation
Election to cancel
Material / fundamental breach
Cancellation clause
Waheeda Amien, 2010
95
Cancellation
Material / fundamental breach
“‘goes to the root of the contract’, or affects a ‘vital part’ of the obligations or means that there is no ‘substantial erformance’. It amounts to sa in that the breach must be so serious that it cannot reasonably be expected of the other party that he should continue with the contract and content himself with an eventual claim for damages.” (Swartz & Son (Pty) Ltd v Wolmaransstad Town Council 1960 (2) SA 1 (T) at 4) Waheeda Amien, 2010
96
Cancellation
Material / fundamental breach applies to:
Repudiation reven on o per ormance
Positive malperformance
Mora debitoris + mora creditoris
Waheeda Amien, 2010
97
Damages
Distinguish between damages in contract + damages in delict:
“A litigant who sues on contract sues to have his bargain or its equivalent in money or in money and kind. The which he has sustained because of the wrongful conduct of another, in other words that the amount by which his patrimony has been diminished by such conduct should be restored by him.” (Trotman & Another v Edwick 1951 (1) SA 443 (A) at 449B-C) Waheeda Amien, 2010
98
Variation of contract
Must follow the same formalities as for the conclusion of the contract E. . Alienation of Land Act 68 of 1981
Non-variation clause may require variation of contractual terms to be in writing
Waheeda Amien, 2010
99
Transfer of contractual terms + obligations
Cession
=
rights
Assignment
=
rights + obligations
Waheeda Amien, 2010
100
Cession of rights
Dr
Cr 1
Cedent (Cr 1)
Cr 2 (Cessionary)
Dr
Cessionary
Example 1: lease agreement Example 2: future book debts Waheeda Amien, 2010
101
Cession Prohibition against cession of rights in:
Compensation for Occupational Injuries and Diseases Act 130 of 1993
Statutory Pensions Protection Act 21 of 1962
Insolvency Act 24 of 1936
Waheeda Amien, 2010
102
Cession
Debtor’s consent not required unless s/he has substantial interest in the identity of the creditor
i.e. when the identity of the creditor makes a reasonable or substantial difference to the debtor.
Waheeda Amien, 2010
103
Cession
Labour Relations Act:
sale of business as a going concern
Paig Paiges es v Van Van Ryn Ryn Gold Gold Mine Mines s Est Estat ate e Ltd Ltd 1920 1920 AD 600
Waheeda Amien, 2010 2 010
104
Delegation of obligations
Novation Creditor’s consent required E.g. lease agreement Dr
Cr 1
3rd party Waheeda Amien, 2010 2 010
105
Assignment of rights + obligations obligations
Novation Dr / Cr
E.g. lease agreement
Consent required
Waheeda Amien, 2010 2 010
Dr / Cr
106
Termination of contractual obligations 1. 2. 3. 4. 5. . 7. 8. 9. 10. 11.
Proper performance Agreement Cancellation Death Failure of creditor to perform nso vency Merger Novation Prescription Set-off Supervening impossibility of performance Waheeda Amien, 2010
107
Proper performance a) Perform at the agreed place + time i. Identity of the parties ii. Performance must follow the manner agreed upon b) Payment in cash + by cheque Waheeda Amien, 2010
108
Agreement
Waiver
Compromise
Waheeda Amien, 2010
109
Prescription
Defence for debtor
Prescription Act 68 of 1969 ree
years or most types o
Delay of prescription
Interruption of prescription Waheeda Amien, 2010
e ts
110
Set-off 1. Indebtedness in the same capacities
.
3. Debts must be of the same type and liquidated
Waheeda Amien, 2010
111
