1. Introduction to the Law of Contract
Study Units 3 and 4
Introduction to the Law of Contract

2. What is a contract?

3. Definition
An agreement that creates a legally enforceable obligation

4. The concept of “obligatio”
Obligatio (obligation) is the legal relationship that exists when parties to an agreement acquire personal rights against each other
Duty to perform
Right to receive performance

5. Discussion
All contracts are agreements but not all agreements are contracts

6. The Requirements of a Valid Contract
Consensus
Contractual capacity
Legal possibility of performance
Physical possibility of performance
Formalities

7. Freedom of Contract
People free to choose with whom and on what grounds they contract with one another
Generally all agreements lawful unless prohibited by statute or common law
Contra bones mores

8. Contracting electronically
Electronic Communications & Transactions Act 25 of 2002
Allows for electronic contracting
Reception theory – time & place when offeror receives acceptance
Signature
Required by law – advanced electronic signature
Required by parties – /normal

9. Consensus
Each party must have a serious intention to be bound to the contract
Common intention
Must make intention known to the other party

10. 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

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

12. 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”?

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

14. 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

15. Contents of a contract
A contract consists of terms that are either specifically agreed on by the parties and expressed in the contract and terms that are implied by law (and therefore automatically included)

16. Essential, residual & incidental terms
Essentialia (essential terms)
Those terms that are essential to a paryticular type of contract; eg: the thing sold & the price are essentials in a contract of sale
Naturalia (residual terms)
Those terms that are automatically implied by law; eg: warranty against latent defects in contract of sale
Incidentalia (incidental terms)
Those terms added by the parties or changes to residual terms; eg: that delivery will only take place 30 days after payment

17. Express terms
Those issues specifically discussed & agreed upon by the parties during negotiations
Agreed orally or in writing
Can be included in a notice or a ticket for example

18. Ticket example

19. Tacit (implied) terms
These terms are inferred from the surrounding circumstances
Is the term necessary to give effect to the parties intention – if so the Courts will read it into the contract even if the parties did not think about it
Common law rules may apply to something
Terms implied by trade usage
Statutory terms

20. 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

21. 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

22. Conditions
A condition is a type of term “which qualifies the operation of a contractual obligation in such a way that it is dependent on the taking place of an uncertain future event”
Vrancken et al, 2002 (67)
It is not certain when or if the event will take place
Two types of condition

23. Suspensive Condition
The operation of the obligation (performance of rights & duties) is suspended or delayed until the uncertain future event (condition) takes place
Eg: A agrees to employ B if she graduates at the end of the year

24. Resolutive Condition
The obligation comes into operation immediately (performance takes place) but if the uncertain future event (condition) is fulfilled the obligation will immediately terminate
Eg: A agrees that B may use his car until he finds employment. Once B is employed he must hand back the car to A

25. 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

26. 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

27. Duress
Duress – unlawful threat of harm or injury causing other party to enter into contract
Voidable if:
Actual or reasonable fear of physical violence or damage
Imminent or inevitable
Unlawful
By one party against another
Causes party to contract

28. Misrepresentation Misrepresentation – contract voidable if:
Untrue statement regarding existing fact or condition
Made by one party to the other
Misrepresentation must be unlawful
Misrepresentation must have induced (caused) the contract
Can be intentional, negligently or innocent

29. Lack of consensus
Undue Influence – improper or unfair conduct by a party to persuade other party to contract against their free will
Voidable if:
One party exercises influence over another
Influence used to weaken will / resistance
Influence used to persuade other party to contract against own free will & to their disadvantage

30. Resolutive Condition
The obligation comes into operation immediately (performance takes place) but if the uncertain future event (condition) is fulfilled the obligation will immediately terminate
Eg: A agrees that B may use his car until he finds employment. Once B is employed he must hand back the car to A

31. Special circumstances
Invitations to make an offer (advert)
Statements of intent
Calling for tenders
Auctions

32. Time & place of contracting
When parties in each others presence
Information theory
Contract comes into being at the time acceptance communicated and at the place where parties are

33. Time & place of contracting
Where parties not in each others presence
By telephone – Information theory applies – contract comes into being at time & place when offeror becomes aware of offeree’s acceptance
By post – Expedition theory – contract comes into being at time & place when offeree posts letter of acceptance