B Com 2 HR Business Law Contracts

What is a contract?

Definition An agreement that creates a legally enforceable obligation

Discussion All contracts are agreements but not all agreements are contracts

The Requirements of a Valid Contract Lawfulness Contractual Capacity Serious Intention to Contract Communication of Intention Certainty of terms Parties of the Same Mind Physical Possibility of Performance Complies with Formalities Consensus

Lawfulness Freedom of Contract Generally all agreements lawful unless prohibited by statute or common law Contra bones mores

Contractual Capacity Capacity refers to competence in the eyes of the law to: Have rights and duties Perform juristic acts Incur civil or criminal liability for wrongdoing Sue or be sued in their own name – called legal standing or locus standi in judico

Factors Affecting Contractual Capacity Age Marital Status Mental Capacity Intoxication Prodigals Insolvency

Intention to Contract Serious intent to contract A “ meeting of the minds” A reasonable and serious promise An offer as opposed to an invitation to make an offer or a statement of intent to do business

Communication of the Intention Can be verbal or in writing or by conduct (implied/tacit agreement)

Offer & Acceptance Offer Consistent with essentials of contract Must be communicated By offeror to offeree Must contain/define all material terms Can I accept by saying “ yes”?

Offer & Acceptance Revocation Lapsing Rejection Request for information Counter-offer Options

Offer & Acceptance Acceptance Must be consistent with contract Offeree must have capacity & intend to contract Acceptance must be communicated Acceptance must be unconditional Acceptance must be in prescribed manner

Certainty of Terms Must not be so vague as to be uncertain Causes of uncertainty Unlimited options Vague language creates uncertainty No actual contract Unspecified factual details Rules of Interpretation Plain ordinary meaning of words Ambiguity interpreted in context of whole agreement

Parties of the Same Mind Mistake or error Unilateral mistake – one of the parties misunderstands a specific aspect of the contract while the other party is aware of the true facts Common mistake – both parties misunderstand the same term, fact or aspect of the contract Mutual mistake – both parties misunderstand different terms or aspects of the contract

Possibility of Performance Objective vs Subjective impossibility Only objective impossibility leads to voidness Initial impossibility – void if objectively impossible Supervening impossibility – void if impossible due to vis major or causus fortuitus

Formalities General rule – no formalities required Certain legislation prescribes formalities – Alienation of Land Act, Credit Act Parties can also agree on formalities – written agreement etc

Void vs Voidable Void – contract does not come into being because of some fatal flaw Voidable – contract comes into being and is valid and enforceable until set aside by court because of some flaw

Mistake Only a mistake of fact can cause contract to be void Mistake of fact can relate to nature of contract, identity of subject matter, attributes of subject matter or identity of parties Can be a common, unilateral or mutual mistake Common mistake must be material Mutual or unilateral mistake must be material & reasonable

Misrepresentation A false statement of fact by one person to another concerning the contract & which induces person to contract Types of misrepresentation Innocent Negligent Fraudulent In all cases, the contract is voidable

Duress Person induced to contract by threat of violence Contract voidable Contract to detriment Only agreed because of duress

Undue Influence Person induced to contract because of special relationship that existed Eg; family member, pastor, attorney etc Voidable if: Contract to detriment