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Formation of a valid contract Consensus ad idem (‘meeting of minds’) Definition of a contract:
“[A]n agreement between two or more parties which creates legally binding and enforceable rights and duties between them.” [Basic Principles of Business Law 2006: 52]
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Formation of a valid contract Binding vs non-binding contract
Constituent elements of contract: Offer Acceptance
Waheeda Amien, 2010
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
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2010 4 .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 5 .Assisted contracts Children born outside wedlock Consent of mother required unless: o father was in permanent life partnership with mother at the time of child’s birth. or o father acknowledged child + contributed to child’s maintenance Waheeda Amien.
2010 6 .Assisted contracts Parental consent = express / tacit Factors indicating tacit emancipation: age living arrangements relationship between minor + parents Waheeda Amien.
other party committed material breach of contract. 2010 7 . or contract is inherently prejudicial Waheeda Amien. duress or undue influence.Assisted contracts Minors can escape liability if: contract was induced by misrepresentation.
2010 8 .Assisted contracts Remedy if contract is inherently prejudicial = restitution in integrum to restore status quo ante Waheeda Amien.
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 .
2010 10 . stocks + bonds Sale of household furniture Contracts with less onerous implications Waheeda Amien.Married Persons Married in community of property Ltd CC Sale / mortgage of immovable property Sale of shares.
2010 11 .Insolvency Ltd CC Insolvent estate administered by trustee Contract without trustee’s permission = voidable at election of trustee Waheeda Amien.
Mental incapacity arising from mental illness or intoxication No CC Contract = void 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) Acceptance = assent by offeree to the terms contained in the offer Valid contract = valid offer + valid acceptance Waheeda Amien. 2010 13 .
2010 14 .Requirements for valid offer Offer must be: 1. clear + unambiguous 2. In existence at the time that it is accepted Waheeda Amien. Complete. Made with intention of creating legally binding obligations 3.
Offer must be complete. contract = void for vagueness Waheeda Amien. clear + unambiguous Offer must contain all material terms on which offeror wishes to contract Otherwise. 2010 15 .
Offer must be made with intention of creating legally binding obligations Following proposals are not valid offers: Offers made in jest Social arrangements Gentleman’s agreements Most advertisements (except offers for reward) Waheeda Amien. 2010 16 .
court will consider: Surrounding circumstances Precise details of proposal. and How a reasonable person would have interpreted the proposal Waheeda Amien.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. 2010 17 .
2010 18 .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.
2. 3. unambiguous + unconditional Corresponding with the terms of the offer Communicated to the offeror Waheeda Amien. Made by person to whom offer was addressed Made deliberately / consciously Clear. 2010 19 . 4.Requirements for valid acceptance Acceptance must be: 1. 5.
2010 20 .Acceptance must be made by person to whom offer was actually addressed Bird v Summerville and another 1961 (3) SA 194 (A) Waheeda Amien.
Acceptance must be made deliberately / consciously Offeree must know of existence of offer when purporting to accept it Waheeda Amien. 2010 21 .
unambiguous + unconditional A offers to give B the option to buy / sell various properties for R100 000. 2010 22 . Waheeda Amien. 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. B accepts the offer to buy / sell the properties for R100 000.Acceptance must be clear. A offers to sell her car to B for R30 000.
2010 23 .Terms of acceptance must correspond with the terms of the offer Mirror image of each other Variation of terms = rejection + counter-offer Incomplete / partial acceptance Waheeda Amien.
2010 24 .Acceptance must have been communicated to the offeror Offeror must receive acceptance Exceptions to above rule: When need for acceptance is dispensed with 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.
Options Contract where grantor undertakes to keep offer open to grantee for specified period of time Involves two offers: 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 had breach not occurred Waheeda Amien. or Damages to place yourself in position you would have been in had option not been agreed upon. 2010 26 .
she will offer contract to grantee or accept offer by grantee before contracting with anyone else.Right of first refusal Grantor agrees that should she decide to enter into a contract. 2010 27 . Waheeda Amien.
2010 28 . or Interdict Waheeda Amien.Remedies for breach of right of first refusal Damages. or Unilateral declaration of intent.
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 electronic agent Click-wrap agreements Browse-wrap agreements Waheeda Amien. 2010 30 .
2010 31 .Click-wrap agreements Click on: □ “I agree” □ “I agree to be bound by the terms and conditions” Waheeda Amien.
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. Supplier’s registration numbers. 2. names of its office bearers + place of registration Waheeda Amien. Code of conduct to which supplier subscribes + how to access it electronically 6. 4. 3. Supplier’s full name + legal status Supplier’s physical address + telephone no Supplier’s website + email addresses Membership of any self-regulatory / accreditation body to which supplier belongs + contact details of that body 5. 2010 33 .
stored + reproduced electronically by consumers 12. including guarantees that will apply to the transaction and how those terms may be accessed. Description of goods + services offered to enable the consumer to make an informed decision 9. including transport. Manner of payment 11. 2010 34 . Full price of goods / services. Any terms of agreement.7. Time within which the goods will be dispatched / delivered / within which the services will be rendered Waheeda Amien. Physical address where supplier will receive legal service of documents 8. taxes + other fees / costs 10.
consumer may cancel contract within 14 days of receiving goods / services Waheeda Amien. 2010 36 .Supplier obliged to enable consumer to: Review the contract. and Withdraw prior to finalising the contract Failing which. Correct any errors.
consumer may cancel contract within 7 days by written notice Supplier must utilise secure payment system. 2010 37 . supplier must provide details of where + how consumer’s personal information was obtained Waheeda Amien. failing which.Further obligations of supplier: Supplier must execute order placed within 30 days of receiving the order. failing which consumer can sue for damages Provide consumer with the opportunity to unsubscribe from a mailing list If requested.
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 .
2010 39 . transport. video / software products that have been unsealed Gambling Accommodation. catering + leisure services for a specified date / time period Waheeda Amien.Cooling off period does not apply to: Financial services Auctions Foodstuffs + beverages for everyday use Customised goods Goods / services where the price depends on market fluctuations Newspapers. books + periodicals Audio.
Factors that can taint / prevent the conclusion of a valid contract 1. Misrepresentation (voidable contract) 3. 2010 40 . Mistake (void contract) 2. Duress / undue influence (voidable contract) Waheeda Amien.
Mistake Common mistake Unilateral mistake Mutual mistake Waheeda Amien. 2010 41 .
2010 42 .Material mistake Nature of the contract Subject matter of the contract When the identity of the other party matters Waheeda Amien.
2010 43 .Mistake is not material if it relates to: Quality / characteristic of the subject matter Party’s motives When identity of other party is not relevant to the party’s ability to perform Waheeda Amien.
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:
Statement of opinion
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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
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Where one party threatens, coerces / intimidates another to enter into a contract
Persuasion is subtle
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immoral / contrary to public policy. and/or legally impossible = invalid + unenforceable Waheeda Amien. 2010 50 .Legality Contracts that are: illegal.
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 .
2010 54 .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.
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 .
2010 58 .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.
Contents of a contract Terms Express Implied = Clauses Provisions that do not give rise to rights + obligations Waheeda Amien. 2010 59 Both give rise to rights + obligations .
Express terms Articulated verbally or in writing Standard type contracts Caveat subscriptor rule Unsigned documents e. notices Exclusionary / exemption / disclaimer clauses Waheeda Amien. tickets.g. 2010 60 .
Exclusionary / exemption / disclaimer clauses Central South African Railways v McLaren 1903 TS 727 Durban’s Water Wonderland (Pty) v Botha 1999 (1) SA 982 (SCA) Waheeda Amien. 2010 61 .
2010 62 .Implied terms Residual terms / naturalia (implied by operation of law) Tacit terms (implied by fact) Implied by trade usage Waheeda Amien.
agency etc.Residual terms / naturalia Apply to contracts of sale. 2010 63 . Regulated by particular body of law Do not apply to franchise + distribution agreements Waheeda Amien. lease.
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 of the seller. Waheeda Amien. provided the seller is not to blame for the 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. 2010 64 .
2010 65 .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.
be reasonable. be clear. 2010 66 . + not conflict with common law + statutory law Waheeda Amien.Terms implied by trade usage Customs of particular trades / industries Coutts v Jacobs 1927 EDL 120 Usage must: be generally known within trade or industry.
Signed by the seller at Rylands Estate this 1st day of March 2008. Sea Point (hereinafter called ‘the purchaser’) WHEREBY IT IS AGREED AS FOLLOWS: 1. Price The purchase price for the Goods shall be the sum of R50 000. Raeesa Suliman ------------------------------- Waheeda Amien.00 (Fifty thousand rand). 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’). Shalin Naidu ------------------------------Signed by the purchaser at Rylands Estate this 1st day of March 2008. 2.MEMORANDUM OF AGREEMENT entered into between: Shalin Naidu of 25 Ernest Road. 2010 67 . Rylands Estate (hereinafter called ‘the seller’) and Raeesa Suliman of 12 High Level Road.
Common contractual terms Conditions Time terms Warranties Exclusionary / exemption / disclaimer clauses Cancellation clauses Penalty clauses No variation clauses Waheeda Amien. 2010 68 .
2010 69 .” Waheeda Amien. or continued operation.Conditions A condition is a provision in a contract which “makes the operation. of the whole or part of the contract dependent on the happening of an uncertain future event.
Conditions Not terms Suspensive Resolutive Question is whether / not stipulated event / undertaking will happen Waheeda Amien. 2010 70 .
by a Financial Institution. for the sum of R1 million. 2010 71 .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.” Waheeda Amien. upon the security of a mortgage bond over the property.
undertake to pay my former wife maintenance until she remarries or dies. 2010 72 . the husband.Resolutive conditions Example: Condition in a divorce agreement “I.” Waheeda Amien.
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 .
2010 74 .Warranties Express confirmation of the truth of a particular fact in the contract Forms part of the contract Breach of warranty = breach of contract Distinguish between warranty + misrepresentation: Petit v Abramson (II) 1946 NPD 673 Waheeda Amien.
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 .
” Waheeda Amien. 2010 76 . the landlord shall be entitled to cancel this lease.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.
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. 2010 77 .” Waheeda Amien.
” Waheeda Amien. 2010 78 .No variation clauses Example: “No variation to the contract will be of any force and effect unless the variation has been reduced to writing and signed by both parties.
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 .
2010 80 .Parol evidence rule Forms part of the law of evidence Court must only consider written document No oral evidence allowed Exceptions to above: Where agreement is partly verbal + partly written Where written terms are vague / incomplete / ambiguous Waheeda Amien.
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 .
Mora debitoris Mora creditoris Repudiation Positive malperformance Prevention of performance Waheeda Amien. 5. 4. 2. 3.Breach of contract Types of breaches 1. 2010 82 .
Mora debitoris “Delay. 2010 83 .” Breach of a time term by the debtor Two elements: Performance must be due + possible Obligation must be enforceable Waheeda Amien. of performance of a contractual duty. in other words mora is wrongful failure to perform timeously. without lawful excuse.
” Breach of a time term by the creditor Two elements: Performance is due Debtor tenders proper performance Waheeda Amien. 2010 84 .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.
2010 85 . Employee fails to report for duty and starts employment elsewhere Anticipatory breach Waheeda Amien.Repudiation Rejection of contractual obligations Examples: 1. Seller informs purchaser she has decided to keep the goods 2.
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 .
debtor is a chauffeur and she loses her driver’s licence as a result of a drunk driving conviction Waheeda Amien.g. 2010 88 .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.
2010 89 . Waheeda Amien.Prevention of performance Scenario 2: Performance by the debtor is prevented by the actions of the creditor e. chauffeur (debtor) tenders performance (arrives at work) but her employer destroys the vehicle that she is required to drive.g.
2010 90 .Remedies for breach of contract Declaration of rights Specific performance Cancellation Damages Waheeda Amien.
2010 91 .Declaration of rights High Court application To obtain clarity regarding obligations and rights under a contract Waheeda Amien.
2010 92 .Specific performance Mandatory interdict Prohibitory interdict Requirements for interdict: Clear right Injury / well founded fear that injury will be committed No other remedy exists Waheeda Amien.
2010 93 .Specific performance Court has discretion to grant order: Haynes v King William’s Town Municipality 1951 (2) SA 371 (A) Waheeda Amien.
2010 94 .Specific performance Exceptio non adimpleti contractus: Motor Racing Enterprises (Pty) Ltd (in liquidation) v NPS (Electronics) Ltd 1996 (4) SA 950 (A) BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A) Waheeda Amien.
Cancellation Election to cancel Material / fundamental breach Cancellation clause Waheeda Amien. 2010 95 .
” (Swartz & Son (Pty) Ltd v Wolmaransstad Town Council 1960 (2) SA 1 (T) at 4) Waheeda Amien. It amounts to saying 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. or affects a ‘vital part’ of the obligations or means that there is no ‘substantial performance’. 2010 96 .Cancellation Material / fundamental breach “‘goes to the root of the contract’.
Cancellation Material / fundamental breach applies to: Repudiation Prevention of performance 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. 2010 98 . The litigant who sues on delict sues to recover the loss 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 99 .g. Alienation of Land Act 68 of 1981 Non-variation clause may require variation of contractual terms to be in writing Waheeda Amien.Variation of contract Must follow the same formalities as for the conclusion of the contract E.
Transfer of contractual terms + obligations Cession Delegation Assignment = = = rights obligations rights + obligations Waheeda Amien. 2010 100 .
Cession of rights Dr Cedent (Cr 1) Dr Cr 1 Cr 2 (Cessionary) 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. when the identity of the creditor makes a reasonable or substantial difference to the debtor. Waheeda Amien.e. 2010 103 .
Labour Relations Act: sale of business as a going concern
Paiges v Van Ryn Gold Mines Estate Ltd 1920 AD 600
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Delegation of obligations
Novation Creditor’s consent required E.g. lease agreement Dr Cr 1
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Assignment of rights + obligations
Novation Dr / Cr E.g. lease agreement Consent required Dr / Cr
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9. 4. 6. 8.Termination of contractual obligations 1. 7. 3. 5. 2010 107 . 10. Proper performance Agreement Cancellation Death Failure of creditor to perform Insolvency Merger Novation Prescription Set-off Supervening impossibility of performance Waheeda Amien. 11. 2.
Performance must follow the manner agreed upon b) Payment in cash + by cheque Waheeda Amien.Proper performance a) Perform at the agreed place + time i. Identity of the parties ii. 2010 108 .
2010 109 .Agreement Waiver Novation Compromise Waheeda Amien.
2010 110 .Prescription Defence for debtor Prescription Act 68 of 1969 Three (3) years for most types of debts Delay of prescription Interruption of prescription Waheeda Amien.
2010 111 .Set-off 1. Indebtedness in the same capacities 2. Debts must be of the same type and liquidated Waheeda Amien. Debts must be due + payable 3.
2010 112 .Supervening impossibility of Performance Vis maior + casus fortuitus Peters Flamman & Co v Kokstad Municipality 1919 AD 427 Benjamin v Myers 1946 CPD 655 Waheeda Amien.
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