Contract Notes

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Contracts Notes 2021
Law of Contract (Varsity College)
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LAW OF CONTRACT 2021

LEARNING UNIT 1-7
Textbook, Slides, Recordings, Class Notes

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Contents
LEARNING UNIT 1: NATURE AND BASIS OF CONTRACT ................................................................. 4
Overview .............................................................................................................................................. 4
Theme 1: Notion and Basis of Contract .............................................................................................. 4
Differentiate between the notion of a contract and other legally binding agreements ..................... 4
Requirements and key characteristics of a valid contract ............................................................... 7
Law of contract vs other branches of the law of obligations ............................................................ 9
Historical development of the modern contract ............................................................................. 11
Constitutional impact on the law of contract .................................................................................. 12
The basis of contract...................................................................................................................... 15
Theories of contract ....................................................................................................................... 16
Cornerstones of contract ............................................................................................................... 19
Interplay between competing values ............................................................................................. 22
Interaction between common law contract and the Consumer Protection Act (CPA) ................... 24
LEARNING UNIT 2: FORMATION OF CONTRACTS .......................................................................... 29
Overview ............................................................................................................................................ 29
Theme 1: Offer and Acceptance ....................................................................................................... 29
The offer and its legal effects ......................................................................................................... 29
Requirements for the valid formation of an offer ........................................................................... 30
Offers to the public ......................................................................................................................... 32
Termination of an offer ................................................................................................................... 36
Acceptance .................................................................................................................................... 37
Requirements for valid acceptance ............................................................................................... 37
Other elements of acceptance ....................................................................................................... 37
Breaking off negotiations ............................................................................................................... 40
Pacta de contrahendo .................................................................................................................... 41
Theme 2: Mistake and the absence of consensus ............................................................................ 50
Effect of a mistake on the validity of a contract ............................................................................. 50
Classification of mistake ................................................................................................................ 50
Limitations to the Will Theory ......................................................................................................... 53
Reliance based correctiveness ...................................................................................................... 53

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Contractual impact of common mistake......................................................................................... 60
Rectification ................................................................................................................................... 60
Theme 3: Improperly obtained consensus ........................................................................................ 61
Introduction .................................................................................................................................... 61
Remedies for contracts entered into by misrepresentation, undue influence and duress (improperly
obtained consensus) ...................................................................................................................... 61
Misrepresentation .......................................................................................................................... 62
Duress ............................................................................................................................................ 66
Undue Influence ............................................................................................................................. 67
Commercial Bribery ....................................................................................................................... 67
LEARNING UNIT 3: REQUIREMENTS OF A VALID CONTRACT ...................................................... 68
Overview ............................................................................................................................................ 68
Theme 1: Contractual Capacity ......................................................................................................... 68
Legal capacity v Contractual capacity ........................................................................................... 68
Different categories of capacity for natural persons ...................................................................... 69
Contractual capacity of a juristic person ........................................................................................ 72
The State ....................................................................................................................................... 73
Theme 2: Formalities ......................................................................................................................... 74
Introduction .................................................................................................................................... 74
Prescribed formalities required by law for validity ......................................................................... 74
Prescribed formalities required by law for enforcement against 3 rd parties ................................... 75
Formalities in electronic contracts ................................................................................................. 75
Theme 3: Legality .............................................................................................................................. 80
Illegal Contracts that are void ........................................................................................................ 80
Illegal contracts that are valid but enforceable .............................................................................. 86
Theme 4: Possibility and Certainty .................................................................................................... 88
Possibility ....................................................................................................................................... 88
Certainty ......................................................................................................................................... 91
LEARNING UNIT 4: CONTENTS AND OPERATION OF A CONTRACT ............................................ 93
Overview ............................................................................................................................................ 93
Theme 1: Parties to a contract .......................................................................................................... 93
Different types of liability of parties ................................................................................................ 93

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Stipulatio alteri and legal consequences ....................................................................................... 94
Theme 2: Obligations and Terms ...................................................................................................... 98
Express, implied and tacit terms .................................................................................................... 98
Application of rectification doctrine .............................................................................................. 102
Time clauses- special and resolutive ........................................................................................... 104
Suppositions, modal clauses, exemption clauses, non-variation clauses, governing law clauses
..................................................................................................................................................... 104
LEARNING UNIT 5: Breach of contract and Remedies for breach of contract .................................. 106
Overview .......................................................................................................................................... 106
Theme 1: Breach of contract ........................................................................................................... 106
Introduction .................................................................................................................................. 106
Specific forms of breached recognised by our law ...................................................................... 106
Theme 2: Remedies for breach of contract ..................................................................................... 117
Different remedies, effectiveness of each and implications for innocent party ............................ 117
LEARNING UNIT 6: Transfer and termination of rights and obligations ............................................. 123
Overview .......................................................................................................................................... 123
Theme 1: Cession and termination of rights.................................................................................... 123
Introduction .................................................................................................................................. 123
Nature of cession ......................................................................................................................... 123
Subject matter of cession ............................................................................................................ 123
Requirements for valid cession .................................................................................................... 124
Consequences of cession ............................................................................................................ 126
Security cession (Cession in securitatem debiti) ......................................................................... 127
Ways to extinguish obligations .................................................................................................... 128
LEARNING UNIT 7: Consumer Protection Act 68 of 2008 ................................................................. 131
Overview .......................................................................................................................................... 131
Introduction ...................................................................................................................................... 131
Purposes of the CPA ....................................................................................................................... 131
Chapter 2 CPA: fundamental rights ................................................................................................. 132
Interpretation of CPA ....................................................................................................................... 133
When does the CPA apply? ............................................................................................................ 133
Enforcement of the CPA .................................................................................................................. 134

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LEARNING UNIT 1: NATURE AND BASIS OF CONTRACT

Overview
The SA law of contract is premised on Roman Dutch law principles of contract and forms part of the
private law of obligations. There are specific requirements that need to be fulfilled before an agreement
satisfies the definition of a contract. There are also various theories and approaches that have evolved
in our law in terms of determining whether an agreement truly exists between two contracting parties,
and how that agreement should be enforced at law.
“We consider the first question whether the Constitution applies directly to a contractual dispute
between private parties and thereafter the possible ways in which the Constitution may impact upon the
law of contract … The supremacy clause (s2), provides: ‘The Constitution is the supreme law of the
Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled.’
This leaves no room for doubt that all law, including common law of contract, is subject to constitutional
control, a position now confirmed by the Constitutional Court.”
“Fundamental concepts in the law of contract include Freedom of contract, sanctity of contract, good
faith and privity of contract. There is some competition between these underlying values. The idea of
freedom of contract is today under considerable pressure and courts are increasingly willing to use
concepts such as good faith, public policy and the African notion of ubuntu to ensure that contract law
operates in a manner consistent with the Constitution.”
In this learning unit, we will look at the nature, notion and basis of contract within the SA context. We
look at how our law of contract has developed over time and how these concepts can be applied to a
modern, real-life scenario, taking into account relevant legislation and the values underpinning the law
of contract.
Theme 1: Notion and Basis of Contract

Differentiate between the notion of a contract and other legally binding agreements
The notion of a contract
Contract as an agreement intended to create enforceable obligations

• A contract is essentially an agreement between 2 or more parties, but not all agreements are
contracts
• Social and domestic agreements do not give rise to legally binding obligations
o Eg’s: A and B agree to play tennis together on the weekend; a married couple agree
that the husband will wash the dishes after each evening meal
• The difference between a contract and non-binding agreement, or the element which
distinguishes them from each other = animus contrahendi - a serious intention to create legally
enforceable obligations

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o The absence of an animus contrahendi explains why ‘gentlemen’s agreement’s’ are

not enforceable as contracts, since they are intended by the parties to be binding on
them in honour only, and not in law
o The same goes for a letter of intent or note that an agreement is “subject to a contract”,
which indicates that the agreement is not regarded as legally binding as yet
• Determining whether the parties intended to create a legally binding agreement is a question
of fact based on evidence
• If a party lacks the necessary animus contrahendi but leads the other party into the reasonable
belief that he/she does seriously intend to bind him or herself, the law will protect that
reasonable belief and uphold the contract.
Legally binding agreements that are not contracts

• The fact that the parties seriously intend their agreement to have binding legal effect does not
necessarily mean that it is a contract
o Because not all binding agreements are contracts!
o Some agreements are intended not to create obligations, but to destroy them, or to
honour them by transferring rights
• Classification of legally binding agreements/ real agreements:
o Obligationary agreements → 1/more obligations created
▪ Eg: sale/lease – a contract of sale obliges the seller to transfer the thing sold
to the purchaser who is bound to pay the price
o Absolving agreements → obligations are discharged or extinguished
▪ Eg: cancellation of sale/lease – an agreement between the seller and
purchaser to cancel the sale
o Real/transfer agreements → rights are transferred with the necessary animus
transferendi (intention to transfer) and animus acquirendi (intention to acquire)
▪ Eg: agreement in which the seller’s obligation would be fulfilled by transferring
the ownership of the thing sold to the purchaser by traditio with the necessary
physical element (delivery) and mental element (animus transferendi and
animus acquirendi)
Legally binding agreements that are more than just contracts

• Some legally binding agreements that create obligations for the parties cannot be regarded
merely as contracts because they contain elements giving them another dimension altogether,
or elevating them into a separate category
• Examples
o Marriage
▪ Although it is based on agreement of the parties and gives rise to obligations
such as the reciprocal duty of support, marriage can hardly be treated like any
other contract since its primary purpose is not the creation of obligations, so
the normal rules of contract do not apply.

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▪ Thus, it cannot be made by exercising the free will of parties without the
intervention of the State, and it has certain invariable consequences that
cannot be excluded by the parties.
▪ Accordingly, marriage is best regarded as an agreement sui generis givng
rise to a relationship that confers on the parties a status of public character
o Judgment by consent
▪ Parties ask the court to give a judgment or make an order that reflect the terms
of their agreement
▪ Has a dual character
➢ judicial act with all the authority, force and effect of any other judgment
or order of the court; as well as
➢ remains in substance a contract of the parties, albeit one of an
elevated status because of the superimposition of the command of
the court
o Agreements entered into with public bodies or organs of state
▪ Straddle the divide between public and private law
▪ Usually superior v subordinate. However, when the state enters the
commercial domain and concludes contracts with its underlings, the playing
fields are to a large extent levelled, with the state generally, but not always,
being treated in the same way as any other contracting party
Definition of a contract
• A contract is an agreement entered into by two or more persons with the necessary intention
of creating a legal obligation or obligations and being recognised by the law as being binding
on the parties.

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Requirements and key characteristics of a valid contract

Requirements for a valid contract
Consensus
• Meeting of the minds of the parties on all material aspects of the agreement
Capacity
• Parties must have the necessary capacity to contract
Formalities
• Where an agreement is required, unusually, to be in a certain form (eg: in writing and signed),
these formalities must be observed
Legality
• The agreement must be lawful, ie: not prohibited by statute or common law
Possibility
• The obligations undertaken must be capable of performance when the agreement is entered
into
Certainty
• The agreement must have a definite or determinable content, so that the obligations can be
ascertained and enforced
The nature of a contract
Key characteristic features of a contract

• A juristic act → an act to which the law attaches the consequences intended by the parties
o Necessarily bilateral, or sometimes multilateral – law does not recognise a unilateral
promise (pollicitatio) as being binding
• Entails undertakings on one or both sides
o To give something (dare); or
o To do something (facere); or
o To refrain from doing something (non facere); or
o That a certain state of affairs exists, or has existed = warranty
• Entail reciprocity → one party’s performance is promised in exchange for the other party’s
performance
o Highlights the economic function of a contract as a medium of voluntary exchange of
goods and services in the economy
• Process of contracting is by and large an informal one
o Reflecting the general trend away from formality in modern law
o Majority of the contracts concluded today are concluded orally, or even tacitly, without
any formality whatsoever

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o Eg: buying groceries from a supermarket

• Freedom of contract as a principle → parties can agree to anything that is possible and lawful
• All contracts are consensual and bonae fidei → parties are required to conduct their
relationship in a manner consistent with good faith

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Law of contract vs other branches of the law of obligations

Concept of obligation
• An obligation is a legal bond (vinculum iuris) between 2 or more persons, obliging the one
person (the debtor) to give, do, or refrain from doing something to or for the other (the creditor)
• An obligation has 2 components → a right and a corresponding duty
• The legal relationship created by an obligation is a personal one, binding only the parties to it.
o Creditor can demand performance only by the debtor, and the debtor is obliged to
perform only to the creditor
▪ The right created by an obligation is a personal right (ius in personam) as
opposed to a real right (ius in rem)
• If the obligation is enforceable by action in a court of law = civil obligation/ obligations civiles
• If the obligation is unenforceable by action in a court of law although does have certain legal
consequences = natural obligation/ obligations naturales
• If the obligation is unenforceable by action in a court of law and does not have certain legal
consequences = moral obligation
• Primary sources of obligations
o Contract
o Delict
o Unjustified enrichment
o Negotiorum gestio
o Family relationships
o Wills
o Statutes
Contract and delict
• Delict: a wrongful and blameworthy conduct that causes harm to a person

o Obliges the wrongdoer to compensate the injured party
• Main difference between contractual and delictual obligations
o Contractual obligations are voluntarily assumed by the parties themselves
o Delictual obligations are imposed by law, irrespective of the will of the parties
• Within limits, the parties can determine the nature and content of the terms of their contract
o Any breach of the terms might entail legal consequences, including a duty to pay
damages by way of compensation. This duty may originate from the parties will but it
is imposed by law as a consequence of the unlawful breach of the contract
o Thus, similarity between a breach of contract and a delict
• Both a breach in contract and a delict are civil wrongs giving rise to a duty to pay damages
• It is possible that the same conduct might constitute both a delict and a breach of contract – in
such cases, there is concurrent liability in contract and delict, and the plaintiff may sue on
either basis

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o if a party elects to sue on a delict, he must prove each element of the delict
o the mere fact the conduct constitutes a breach of contract does not necessarily mean
that the conduct is wrongful for the purposes of imposing delictual liability – the conduct
must infringe a right of the plaintiff that exists independently of the contract
▪ Eg: if A contracts with B to supply a machine capable of producing 5000 bolts
per hour, and the machine supplied only produces 3000 bolts per hour, there
is a breach of contract but no delict, because B has no right independently of
the contract to receive a machine that can produce 5000 bolts per hour. But if
the machine blows up and takes out B’s eye, B may well have a claim in delict
because the right not to be injured in one’s person as a result of negligence of
another exists independently of any contract between the parties.
Contract and enrichment
• Unjustified enrichment: when there is a shift of wealth from one person’s estate to another’s
without a good legal ground or cause for this shift
• Enrichment must be made without due cause (sine causa)
• The enriched party has a duty to restore – restitution – and the depoverished party must prove
an action to claim – condictio
• The enrichment must be unjustified (lack causa)
Table comparing contract, delict and enrichment
Contract Delict Enrichment

Event giving rise to Agreement to make the Wrongful conduct that Unjustified shift of
the obligation performance (to give, causes harm to wealth or an asset from
do or not do another one estate to another
something)
Content of obligation To make the promised To avoid causing harm To return the
performance by wrongful conduct enrichment
Nature of remedy Actual performance, or Compensation for Return of the
compensation for non- harm caused enrichment
performance
Source of obligation Self-imposed Imposed by law Imposed by law
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Historical development of the modern contract

• Our law of contract is essentially a modernised version of the Roman-Dutch law of contract,
though common law principles are today supplemented by a number of important statutes,
foremost of which is the Consumer Protection Act (“CPA”)
• Like all branches of law, is subject to the Constitution
o Courts are therefore empowered and enjoined to ensure such consistency by
developing the common law where necessary, and when developing the common law
they must promote the spirit, purport and objects of the BOR
• There have been legislative changes, judicial adaption and borrowing from English law – the
fundamental principles of our law of contract are mainly Dutch
o Those principles have their roots in Roman Law, however, our modern notion of the
contract differs from early Roman Law
Roman law
• Roman law had a law of contracts, rather than of contract

o Recognised a number of distinct categories of contract:
▪ Real contracts – created by agreement + delivery
▪ Verbal contracts – of which the most NB was stipulatio, created by the use of
prescribed, formal words to express a promise
▪ Literal contracts – created by recording an agreed debt in a ledger
▪ Consensual contracts – created by mere agreement
• No agreement that fell outside these defined categories was a contract, no matter how seriously
intended by the parties, because the fundamental principle was ex nudo pacto non oritur
action = informal agreements/bare pacts give rise to no action
o Thus, only in the case of consensual contracts was mere agreement sufficient in itself
to create the contract
o All other contracts required some further element = causa
• Progress from strict formality of the early stricti iuris contracts to the sophisticated informality of
the later consensual contracts, based on good faith (bona fides)
o Earlier unilateral contracts were stricti iuris
o Later, bilateral contracts were bonae fidei
• Trend towards informality and generalisation of the notion of contract continued in the later
centuries, first with the recognition of the so-called innominate contracts, then with the
enforcement of certain informal pacts, and finally, most important of all, the relaxation of the
formal rules with regard to stipulations
• General view → Roman law never quite reached the stage of enforcing all serious and
deliberate agreements as contracts
Roman-Dutch law
• Completed the process of generalisation
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• Influenced by Canon Law

• Discarded the subtle distinction of the Roman law of contracts and accepted as the basis of the
RD law of contract the fundamental principle that, as a matter of good faith, all serious
agreements ought to be enforced (pacta sunt servanda)
• All contracts were now said to be consensual and bonae fidei, however, many of the writers
continued to assert that a iusta causa was a necessary element of contract, without defining
that elusive concept
o This uncertainty gave rise to a celebrated dispute in early SA law
Causa and consideration: a celebrated dispute
• Late 19th century → the Cape Supreme Court under the dominating influence of Lord Henry De
Villiers CJ, adopted the view that by iusta causa was meant valuable consideration – ie: even
a serious promise should not be enforced as a contract unless the other party gave or promised
something in return
o Approach was met with great resistance
• Nearly 50 years after the dispute started, the AD in the case of Conradie v Rossouw 1919
ruled that the English doctrine of consideration forms no part of our law in SA, and any serious
and deliberate agreement made with the intention of creating a legal obligation is a binding
contract, provided only that the agreement is lawful and possible of performance, and
that the parties have the requisite capacity to contract
o Although all members of the court agree that causa did not mean consideration, they
could not reach agreement on what it did mean
o Dominant view was that it meant the ground or reason of the contract – that which
is brought about, but another view was that it meant the particular transaction out of
which the obligation is said to arise
• Subsequently, iusta causa came to be treated by the courts and academic writers as meaning
no more than that the parties should have a serious intention to create a binding contract
and that the agreement should be a lawful one
o As such, the concept is entirely redundant for it merely repeats the other requirements
for a valid contract
o However, this too has been dispute
• However, the overwhelming weight of academic opinion is that the concept has become
redundant and should be allowed to die a natural death
Constitutional impact on the law of contract

• The Consumer Protection Act and the Alienation of Land Act, among others, have also
(alongside the Constitution) had an important impact and influence on the law of contract
• The Constitution:
o Sec 8: direct application BUT sec 36 may limit by a law of general application
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▪ The rights in the BOR may be relied upon directly for obtaining relief (don’t
have to consider the common law)
▪ E.g. Contract which limits your right to approach the courts:
• Could argue that it is an infringement on your right to access the courts,
and thus the term must be struck down
▪ But, our courts generally do not favour the direct horizontal approach:
• Sec 36 allows limitations to be imposed on rights – no constitutional
right is absolute
• But, rights may only be limited by a law of general application
o A contractual term is not a law of general application
o Technical question is how you can apply sec 36 to limit a
constitutional right if sec 36 only applies to laws of general
application and not to the term
o Thus, cannot use sec 36 to limit your right because the
limitation (the contractual provision) is not a law of general
application
o Sec 39(2):
▪ When developing the common law, the courts must promote the BOR
▪ This has been relied on the most in contractual law disputes when applying the
Constitution to the law of contract
▪ When dealing with a contractual issue where the Constitution comes into play,
the courts will adopt certain steps in deciding the issue → two fundamental
steps:
• First, determine what the common law rule is and what the rationale/
purpose behind the rule is
• Second, determine whether there is some kind of incompatibility
between the common law and the Constitution and especially the BOR
o If the answer is no, then the rule may remain as is
o If the answer is yes, then determine how the common law
should be developed to resolve the incompatibility – we want
to make it in line with the BOR
o Sec 173: power of the courts to develop the common law
▪ The courts have the power to develop the common law
▪ Only the High Courts
• The impact of the Constitution on the development of the law of contract has actually been very
minimal in comparison to, for e.g., the law of delict and criminal procedure
o Can parties agree to negotiate further?
▪ Common law doesn’t allow due to the uncertainty of the agreement, but CC
has indicated that these agreements may be recognised as valid in the future
▪ Therefore, agreements to negotiate further may be recognised in the future
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o Limiting the ability of people to discriminate against others in deciding with whom they
want to contract
▪ Law is clear on the principle that you cannot arbitrarily discriminate against people
in order to decide with whom you will contract
▪ E.g. Advertising a flat for rent, but excluding all applicants from a certain racial
group
o Open-ended rules: there is a norm or rule that the content and the enforcement of a
contract should not be against public policy
▪ How to give effect? The Constitution provides guidelines as to what constitutes
public policy (through the values and Bill of Rights for e.g.)
▪ E.g. Contract to hire an assassin would be a valid contract in the formal sense, but
would be invalid as it is not in line with public policy – you cannot conclude a
contract to kill a person (commit a crime) for money
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The basis of contract

• In modern law all contracts are consensual, ie based on agreement → but what is an
agreement?
o Must there be a meeting of the minds on all aspects of the contract, or is an objective
approach to the agreement sufficient?
Actual subjective agreement (consensus)
• A genuine agreement presupposes an actual meeting of the minds (concursus animorum)

• Subjective consensus exists when all parties:
1. Seriously intend to contract
2. Are of one mind (ad idem) on material aspects of the contract ie: terms/conditions;
identities of parties
3. Are conscious of the fact that their minds have met
• Consensus: a process of communication where the parties declare their intent in a declaration
which must be expressed in words, or conduct or in some cases silence
o This process is analysed in terms of offer and acceptance
Apparent/Objective agreement
• In practice, there is always uncertainty as to the true intention and the expressed or perceived
intention – ie: message sent (or intended) is not the same as the message received
• This uncertainty can result because of:
a. A hidden mental reservation of a party
b. A misunderstanding/mistake
• In such cases, there is dissensus (a lack of meeting of the minds), rather than consensus, which
leads to the question of whether any contract could have come into existence between the
parties?
o Since all contracts are said to be based on agreement, one might think the answer is
NO.
o However, what if, despite the absence of an actual agreement, there is an objective
appearance of agreement created by the conduct of one party and on which the other
has reasonably relied?
• Whether or not a legal system will uphold a contract in such circumstances depends upon
whether its approach to contract is wholly subjective or, to some extent at least, objective
o Choice of approach will depend upon why the system in question regards a person as
bound by a contract.
o This raises philosophical issues on which a number of theories have ben advanced,
particularly in continental legal literature
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Theories of contract
Will theory
• The basis of contract is to be found in the individual will
• Parties bound by their contract because they have chosen to be bound
• The purpose of the law of contract is to give effect to this expression of party autonomy
o The essential freedom of the parties as adults of full capacity to undertake binding
obligations and to organise their affairs as they see fit, within the limits of the law and
public morality
• Will theory postulates an extremely subjective approach to contract – consensus is the sole
basis of contractual liability, with the result that if there is no general concurrence of wills, there
can be no contract
o Thus, whenever a person is mistaken about a material aspect of the proposed
agreement, there is no binding contract
o In the absence of consensus, there can be no contract
• However, an unqualified adherence to this theory could produce results that are both unfair and
economically disastrous
o Unfair because it fails to protect the reasonable expectations of a party who has relied
on the objective appearance of consensus created by the other party’s conduct
o Economically disastrous because it ignores the need for legal certainty in commercial
dealing
Declaration theory
• The inner wills of the parties are irrelevant – what is important for contract is not what the parties
think but what they say or do – the external manifestations of their wills (conduct)
• Thus, the true basis of contract is to be found in the concurring declarations of the parties
• Extremely objective approach to contract
• This theory would also prove unacceptable in practice, unless qualified.
o By favoring form over substance, it could rather absurdly result in a contract intended
by neither party, it would also permit parties to disguise their transactions, would
preclude a claim for rectification and would leave no room for a doctrine of mistake in
contract law
Reliance theory
• The basis of contract is to be found in detrimental reliance on the appearance of agreement or,
in simpler terms, in the reasonable belief in the existence of consensus, induced by the conduct
of the other party
• Middle ground between will theory and declaration theory
• Protects a party’s reasonable expectation of a contract
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• This theory should be seen as a supplement to the will theory, correcting its deficiencies and
affording an alternative basis for contract in circumstances where the minds of the parties have
not truly met
Table illustrating the 3 different theories of contract

Theory Will Declaration Reliance
Basis of contract Consensus: concurring Appearance of Belief in existence of
wills consensus: concurring consensus, induced by
declarations of will other party
Nature of agreement Subjective Objective Semi-objective
Effect of mistake Contractual fails Contract stands Contract fails if reliance
unreasonable
Drawback Fails to protect Favours form over Merely a secondary
reasonable reliance substance basis for contract
Approach to contract: subjective or objective?
• As late as 1958, the AD could say that our law follows a “generally objective approach to the
creation of contracts”. However, more recent pronouncements of that court suggest that our
approach is fundamentally subjective, though tempered by objective considerations in cases of
dissensus.
• Roman-Dutch writers adopted subjective approach to contract formulation, in line with the
general trend in Europe at the time
• English law, by contrast, has always preferred a more objective approach on the grounds that
“the intent of man cannot be tried, for the Devil himself knows not the intend of man”
• SA courts over the years have vacillated between these different approaches
• Saambou-Nasionale Bouvereniging v Friedman – Jansen JA: point of departure when
testing for the existence of a contract is the will theory, but in cases of dissensus, the
shortcomings of that theory are corrected by an application of the reliance theory
o Confirmed in the case of Steyn v LSA Motors Ltd
Dual basis of contract in modern law
• 2 bases to establish contract in modern SA law

1. Consensus
o Primary basis
o To determine if the contract is formed, ask whether the parties minds’ met?
o POD → Will theory – approach is subjective
o If consensus was reached, the enquiry ends and it doesn’t have to be shown why the
parties are bound
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o If the conclusion was that there was no consensus, the enquiry has to go one step
further
2. Reasonable Reliance
o Ask whether either party by their words or conduct led the other party into the
reasonable belief that consensus had been reached
o If so, the contract will be upheld on the secondary basis of reasonable reliance
• If no mutual assent to contract, a contract can be found to be a quasi-mutual assent
o This is because our approach to contract is not wholly subjective – it is tempered by
objective considerations borne of a desire to protect reasonable expectations induced
by the other party
o The will theory may be the POD, but, in the case of dissensus, it is tempered by
application of the reliance theory
Proving the existence of a contract
• Onus = person who alleges that the contract exists

o Discharged by adducing evidence of either consensus or reasonable reliance on the
appearance of consensus
o One must take care not to confuse that which must be proved (subjective state of mind)
with the means of proving it (objective evidence indicating that state of mind)
o The fact that a party must inevitably rely on objective evidence to prove a subjective
state of mind does not mean that the approach to contract must inevitably be an
objective one
• Example: A sues B on a contract and B denies the existence of the contract.
o In order to prove that the parties reached agreement, A will adduce objective evidence
of the agreement, in the form of declarations made by the parties. Usually, this will
entail handing in as evidence a document signed by both parties. B’s signature
appended to the document serves as prima facie proof that B agreed to the terms
reflected in the agreement
o The evidentiary burden then shifts to B to show that, despite the objective appearance
of agreement, no consensus was reached. B might do this by proving, for example,
that she was mistaken about the contents when she signed the contract
o If the court believes B on this point, the primary basis of the contract is missing
(consensus), and if A’s claim is to succeed he must then prove reasonable reliance on
the appearance of the agreement. In most cases, the signed document will serve as
prima facie proof not only of consensus but also of reasonable reliance, because it will
usually be reasonable to rely on a person’s signature as indicating consent.
o Ultimately, therefore, the evidentiary burden will rest on B to prove that A’s belief in the
existence of consensus was unreasonable in the circumstances
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Cornerstones of contract
• There are several values which underlie the law of contract in South Africa:
o Freedom of contract – party autonomy, the idea that people are free to decide whether,
with whom, and on what terms they will contract
o Sanctity of contract – pacta sunt servanda, the idea that contracts freely and seriously
entered into must be honoured and enforced (if necessary, by the courts)
o Good faith – bona fides, the idea that the parties to a contract should behave honestly
and fairly in their dealing with each other
o Privity of contract – the idea that a contract creates rights and duties only for those
party to the agreement (i.e. not third persons)
o Ubuntu – the idea of a shared sense of community
o Economic efficiency – the idea that goods and services should be allocated where they
will be appreciated the most (in economic terms), i.e. to the person who values it the
most
• The rules of contract law are the mechanisms which we use to promote and serve underlying
values
Aims of contract law:
• Ensuring that people keep their promises as a matter of honour and morality
• Promoting legal and commercial certainty by providing a framework for safe transaction and
the conducting of business – knowing that serious agreements will be enforced
• The promotion of fairness and reasonableness in contractual dealings
• The provision of a framework of rules that encourage private enterprise and underpin the
operation of the free-market economy
Goals of contract law:
• Process:
a. Goods and services exchanged through barter or immediate payment in cash, and the role
of contract is small
b. Time lapse between undertaking and performance of obligations and parties must begin to
rely on their reciprocal promises to perform at a future date – this is risky since requires
degrees of trust which is insufficient
c. If a party defaults on its promise, the other party can hold them to the agreement in terms
of law
d. Compensation for promises broke
• Need to regulate, to some extent, the conclusion and performance of agreements, to ensure
there is no over-reaching coercion and that parties conduct themselves in an appropriate
manner
• Thus the goals of contract law:
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o Provides a framework to transact in business and exchange resources secure in the

knowledge that, provided both parties act honestly and fairly and follow the right
procedures where appropriate, the law will uphold their agreements and if necessary,
enforce them
o An important mechanism by which we maintain ourselves in society
Competing values of the law of contract which are given effect by rules
• The values inform the rules of the law of contract

• The values may often come into conflict with each other, however, such as the sanctity of
contract and fairness in contractual dealings – finding the balance between such competing
values is vital to the law of contract
o Notion of sanctity of contract goes hand in hand with freedom of contract – contracts
entered into voluntarily and freely should be enforced by the courts to promote legal and
commercial certainty
o But, a concern for fairness and good faith in contractual relations implies a degree of social
control and reflects a more communitarian approach to contract – therefore, while parties
are free to agree on the terms of their contracts, they cannot expect the courts to enforce
a contract which goes against the boni mores of society
• The tension between these different values is evident – and so the balancing act is very
important in every case, and where the balance should be struck requires a value judgment
which will differ from person to person, and the ideas in this regard will change over time
• Historically our law has tended to favour sanctity of contract over considerations of good faith
and equity, but as we shall see the pendulum is now swinging in the opposite direction under
the influence of the Constitution
Value of freedom and sanctity of contract
• Parties are free to decide whether to contract or not to contract, with whom to contract and what
the terms and conditions will be
• The creation of a contract is a result of free choice, without influence and in the process of
contracting is the State
• If a court is satisfied on the below requirements, it should uphold the contract (pacta sunt
servanda)
• The dominant features of the classic model of the sanctity of the contract are:
o Freedom and autonomy of the parties
o Minimal state intervention (merely there to recognise and enforce contracts)
o A preference for clear and certain rules, rather than open-ended standards
o Self-interested individualism
o Assumed fairness of the exchange
o discrete event
• Freedom of contract is engrained in society – we take it for granted
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• In western societies freedom of contract is under pressure because it is assumed that parties
have real freedom to contract. Reasons for this assumption are:
o The parties enjoy more or less equal bargaining power
o There is perfect, or near perfect, competition in the market
o The parties actually negotiate the terms of their contract
• This assumption is incorrect because socio-economic pressure affords little or no choice, very
seldom is contract remised on equality of bargaining power and usually parties accept the
standard T’s & C’s proposed
• This changed in modern times due to reform. There have been developments responsible for
a challenge to traditional contract theory:
o Increased use of standard terms and forms for contract
o Creation of Welfare State – government intervention in markets to eradicate poverty
o Rise of the Consumer Protection movement – a political force in western societies
o Importance of Human Rights as laid down in the Con
o Emphasis on controlling the exercise of power – ensuring fairness in contractual
relations
• The spread of the standard form contract (the “take it or leave it” contract) has to be the most
pronounced development of freedom of contract
o Developed on account of the convenience of Mass Production and Mass consumption
of goods and services, which led to mass contracting on T’s & C’s that are standardised
o Individual negotiation of contracts is expensive in terms of time and money, as well as
open to abuse as the drafter of the contract can impose unreasonable T’s & C’s robbing
the other party of their common law rights and claims for damages
Value of good faith, equity and public policy
• The value of good faith has played a significant role in contractual law since Roman times (stricti
iuris- procedural form), and breathed an equitable spirit into the body of civil law throughout the
course of its development
• In modern times there has been much debate on its role as a counter to freedom of contract
• Roman law limited contract types → good faith played no role provided the correct form was
observed – ie: contract was binding even if fraudulent
• To counter this, the Roman Praetor/Magistrate introduced the defence of bad faith:
o 2 forms of bad faith defences:
a. Exceptio doli specialis → induced by fraud
b. Exceptio doli generalis → where the act of bringing the action showed bad faith
• Therefore, judges got the discretion to decide what was fair and reasonable
• There has been debate on the application of exceptio doli defences in law
o Whether it could be raised as a defence in its own right to a claim was technically good
in law, but unconscionable in the particular circumstances of the case was a highly
disputed question
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Interplay between competing values

Sasfin (Pty) Ltd v Beukes 1989 (A)
Facts
• Respondent doctor had entered into an agreement with the appellant finance company in terms
of which he placed the company in immediate and effective control of his present and future
earnings, and rendered himself powerless to bring the situation to an end
Ratio
• Such agreement was clearly unconscionable and incompatible with public interest
• Various clauses of the agreement were so ‘unconscionable’ and so ‘grossly exploitative’, and
‘offended against the mores of the public to such extent’ that could not be countenanced
Decision
• Whole agreement struck down on the grounds of public policy
Brisley v Drotsky 2002 (SCA); Healthcare Bpk v Strydom 2002 (SCA)

• Its stance on the role of good faith and equity was incorrect
• The concept of good faith, reasonableness and fairness are abstract values and not
independent
Barkhuizen v Napier 2007 (CC)

Facts
• Concerns the constitutionality of a time-limitation clause in a short-term insurance policy

• Clause purported to prevent the insured party from instituting legal action against the insurer if
summons was not issued within 90 days of the insurer’s repudiation of the claim
• Attacked on 2 grounds:
a. Unconstitutional because violated the applicant’s right under S34 Constitution to seek
judicial redress
b. Contrary to public policy in that it operated in an unreasonably harsh and unfair manner
against the applicant
Ratio
• Public policy represents the legal convictions or general sense of justice of the community, the
boni mores and the values held most dear by our society; it takes into account the necessity to
do simple justice between individuals; and is informed by the concept of ubuntu
• “public policy imports the notions of fairness, justice and reasonableness”
• Whilst public policy endorses freedom and sanctity of contract, it would also preclude the
enforcement of a contractual term in circumstances where such enforcement would be unjust
or unreasonable
• In determining the issue of fairness, two questions had to be asked:
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a. Was the clause in question so manifestly unreasonable on its face as to be inconsistent

with public policy? – directed at the objective terms of the contract in question
➢ Involves weighing up the notion of sanctity of contract against other values or
considerations, such as in this case the right to seek judicial redress, but with
regard also to the relative situation of the contracting parties, in particular their
relative bargaining powers
➢ If clause itself was unreasonable, the second question arose:
b. Should it be enforced in light of circumstances that prevented compliance with the clause?
Decision
• Majority judgment, Ngcobo J: The proper approach to constitutional challenged to contractual

terms is to determine whether the term challenged is contrary to public policy as evidenced by
the values that underlie our constitutional democracy and which find expression in the BOR
Everfresh Market Virgina v Shoprite Checkers 2012 (CC)

• Court emphasised the central importance of good faith in our contract law and the desirability
of infusing the law of contract with constitutional values, including the values of ubuntu
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Interaction between common law contract and the Consumer Protection Act (CPA)
• CPA stands next to the common law – not subordinate, usually the first port of call in consumer
issues
• CPA came into effect in April 2011 (but adopted in 2008)
• Sec 2(10): “No provision of this Act must be interpreted so as to preclude a consumer from
exercising any rights afforded in terms of the common law” – the CPA is thus not a full
codification of SA consumer law
- There are also several pieces of consumer legislation still in place which the Act does
not purport to replace – they apply in conjunction with the CPA
- Where any such legislation is inconsistent with the CPA, both Acts must be applied
concurrently – if this is not possible, then the statutory provision which provides the
greatest protection for the consumer will apply
• Purpose of the Act
- CPA provides that its purposes must be taken into account in interpretation of it
- Sec 3(1): purposes are to promote and advance social and economic welfare of
consumers by:
▪ Establishing a legal framework for the achievement and maintenance of a
consumer market that is fair, accessible, efficient, sustainable and responsible
for the benefit of consumers
▪ Reducing and ameliorating the disadvantages experienced by consumers who
have difficulty accessing the supply of goods or services
▪ Promoting fair business practices
▪ Protecting consumers form unconscionable, unfair or improper trade practices
▪ Improving consumer awareness and access to information
▪ Developing a culture of consumer responsibility
▪ Providing an accessible, consistent and efficient system of redress for
consumers
Enforcement of the CPA
• Sec 69: know the sequence – crucial provision (look at which institutions enforce the Act
and what their specific roles are)
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69. Enforcement of rights by consumer
A person contemplated in section 4 (1) may seek to enforce any right in terms of this Act or in terms of a
transaction or agreement, or otherwise resolve any dispute with a supplier, by—
(a) referring the matter directly to the Tribunal, if such a direct referral is permitted by this Act in the case
of the particular dispute;
(b) referring the matter to the applicable ombud with jurisdiction, if the supplier is subject to the jurisdiction
of any such ombud;
(c) if the matter does not concern a supplier contemplated in paragraph (b)—
(i) referring the matter to the applicable industry ombud, accredited in terms of section 82 (6), if the
supplier is subject to any such ombud; or
(ii) applying to the consumer court of the province with jurisdiction over the matter, if there is such a
consumer court, subject to the law establishing or governing that consumer court;
(iii) referring the matter to another alternative dispute resolution agent contemplated in section 70; or
(iv) filing a complaint with the Commission in accordance with section 71; or
(d) approaching a court with jurisdiction over the matter, if all other remedies available to that person in
terms of national legislation have been exhausted.
• Alternative Dispute Resolution Agents:

- Consumers may approach the ombudsperson with jurisdiction over a particular supplier
or if no such ombud exists then the consumer may approach an industry ombud
- E.g. Consumer Goods and Services Ombud (CGSO), Motor Industry Ombud of South
Africa (MIOSA)
▪ The CGSO and MIOSA deal with the majority of the major disputes in terms of
the Act
• Consumer Courts
- Specialised courts
- Not all of the provinces have activated these courts – but various of the provinces do
have them in place
• National Consumer Commission (NCC) – investigates industry at large, issue compliance
notices
- Do not assist individual complainants (even though this is what they are mandated to
do)
▪ Argued that they are practicing in an illegal manner – but this is not important
for our present purposes
- Investigate practices in a broader sector in an effort to protect consumers
- If you (as a supplier) don’t do what the commission orders you to do, will issue a
compliance notice
• National Consumer Tribunal (NCT)
- Has the power to impose fines if you do not comply with the Act
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- This fine could be a percentage of your turnover

• Ordinary courts will only be used as a last resort
- The whole scheme of sec 69 aims to keep consumer disputes out of the ordinary courts
- No legal reason for this
Application of the CPA (sec 5)
• Sec 5(1)(a): the CPA applies to every transaction occurring in the Republic of South Africa
- Sec 1, “Transaction” refers to:
(a) in respect of a person acting in the ordinary course of business—

(i) an agreement between or among that person and one or more other persons for the supply or
potential supply of any goods or services in exchange for consideration; or
(ii) the supply by that person of any goods to or at the direction of a consumer for consideration; or
(iii) the performance by, or at the direction of, that person of any services for or at the direction of a consumer
for consideration; or
- Consideration: some form of counter-performance, not a donation

- Sec 1, “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
▪ This includes contracts → transactions include agreements and agreements
include contracts
▪ Contracts are agreements wherein parties agree to create binding obligations
• Sec 5(1)(b): the CPA applies to the promotion of any goods or services, or of the supplier of
any goods or services, within the Republic
- Sec 1, “Promote” means to:
(a) advertise, display or offer to supply any goods or services in the ordinary course of business, to all or part of
the public for consideration;
(b) make any representation in the ordinary course of business that could reasonably be inferred as expressing a
willingness to supply any goods or services for consideration; or
(c) engage in any other conduct in the ordinary course of business that may reasonably be construed to be an
inducement or attempted inducement to a person to engage in a transaction;
- Sec 1, “Supplier” means a person who markets any goods or services
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• Sec 5(2): the CPA does not apply to the following
(2) This Act does not apply to any transaction—

(a) in terms of which goods or services are promoted or supplied to the State;
(b) in terms of which the consumer is a juristic person whose asset value or annual turnover, at the time of the
transaction, equals or exceeds the threshold value determined by the Minister in terms of section 6 [currently R2
million] ;
(c) if the transaction falls within an exemption granted by the Minister in terms of subsections (3) and (4);
(d) that constitutes a credit agreement under the National Credit Act, but the goods or services that are the subject of
the credit agreement are not excluded from the ambit of this Act;
(e) pertaining to services to be supplied under an employment contract;
(f) giving effect to a collective bargaining agreement within the meaning of section 23 of the Constitution and the
Labour Relations Act, 1995 (Act No. 66 of 1995); or
(g) giving effect to a collective agreement as defined in section 213 of the Labour Relations Act, 1995
- Sec 5(2): some entities do not qualify as consumers and thus do not enjoy the
protection afforded to consumers (e.g. the State, juristic persons with a certain number
of assets or turnover determined by the Minister)
- Sec 5(3), (4): exemptions determined by the Minister
- Credit agreements – ordinary credit agreements will not fall under the protection of the
CPA, the NCA has its own protective measures
▪ The actual goods and services which underlie the credit agreement may be
protected by the CPA
▪ E.g. if you buy a car under the NCA, the car may fall under the ambit of the Act
- Employment agreements
- Specialised legislation provides protection in these specific instances – therefore do
not need the CPA to apply
• Chapter 2 CPA: Forms the backbone of the Act – most of the CPA deals with these specific
rights
- Equality in the market place (protection against discriminatory marketing)
- Privacy of the consumer (protection against direct marketing)
- Consumer entitled to the right to choose (covers a bundle of related rights, such as:
right to select suppliers, right to choose or examine goods and to return them, a cooling
off period, and the right to cancel advance bookings, reservations or orders)
- Rights in terms of disclosure of information (e.g. price of goods and services, no
misleading labelling or trade descriptions, and all information available in plain
language)
- Consumer is entitled to fair and responsible marketing
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- Consumer is entitled to fair and honest dealing (protection against fraud, duress, undue
influence, misleading representations, pyramid schemes, over-selling and over-
booking)
- There should be fair terms in contracts, certain terms are banned under the Act:
▪ Terms aimed at defeating the purposes and policy of the Act, or misleading the
consumer, or subjecting the consumer to fraudulent conduct
▪ Terms that purport to waive or deprive a consumer of rights under the Act, or
to avoid a supplier’s obligations under the Act
▪ Terms that purport to limit or exclude the liability of a supplier (or those for
whom he or she is responsible) for harm caused by gross negligence
▪ Terms that falsely express an acknowledgment by the consumer that no
warranties or misrepresentations were made in connection with the agreement
▪ A term will be unfair, unreasonable or unjust if:
• Excessively one-sided in favour of supplier
• So adverse to consumer that it may be inequitable
• Induced by supplier’s false, misleading or deceptive misrepresentation
• The existence, nature and effect of the term was not drawn to the
consumer’s attention in a manner which was clear and conspicuous
before the transaction was entered into
- Right to fair value, good quality and safety
- Right to accountability by supplier
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LEARNING UNIT 2: FORMATION OF CONTRACTS

Overview
A contract usually begins with an offer from one party, which is accepted by the other party. The offer
and acceptance are governed by specific requirements that need to be fulfilled in order for the contract
to be valid. There are also various theories that govern how and where an acceptance of an offer takes
place. Where a contract is subject to the Consumer Protection Act, there are further requirements that
the offer and acceptance have to comply with. Sometimes, despite a valid offer and acceptance, a
contract may be declared void on the basis that consensus was improperly obtained – or never reached
at all. Where the parties to the contract are mistaken about their agreement, or where the acceptance
was obtained as a result of misrepresentation, duress or undue influence, the contract might not be
legally enforceable at all. In this learning unit, we will examine the law of contract as it relates to the
requirements for valid offer and acceptance. We will look at the unique position occupied by offers to
the public, as well as when and where an acceptance is deemed to have taken place. We will also
consider the different types of pacta de contrahendo and how these agreements function. We will further
examine the consequences that may arise if consensus was allegedly achieved through mistake,
misrepresentation, duress, undue influence or bribery.
Theme 1: Offer and Acceptance

The offer and its legal effects
• Provided the other requirements for validity are met (consensus, capacity, legality, possibility,
certainty, formalities), a contract is formed when parties reach agreement on the material terms
of the contract
o Agreement reached through negotiation
o Involves declarations of intention made by each party – analysed in terms of offer and
acceptance
▪ Where A makes an offer to B and B accepts that offer, such will result in
consensus
▪ Must note that the primary basis for contract is not offer and acceptance,
but consent
▪ Identifying offer and acceptance is useful to determine exactly when and where
a contract is concluded (e.g. in questions of prescription and jurisdiction)
▪ General Rule: parties can express their intention in whatever form – in writing,
orally, through conduct (eg: nodding your head) and even through silence
although only in highly exceptional circumstances
▪ Therefore, contract can be formed tacitly (without words) or expressly in
writing
▪ Most commonly, the offer is in writing and the acceptance is tacit
▪ Exception to General Rule: when the law requires the parties’ declarations to
be in a particular form, or similarly, where parties stipulate formalities for the
creation of a contract.
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• Offer: a proposal to contract, or more formally, a declaration of intention by one party (the
offeror) to another (the offeree), indicating the performance he or she is prepared to make,
and the terms on which he or she will make it
o Usually addressed to a specific person, group of people or general public eg: offer of
reward to the general public
o Legal effects:
▪ Contract is a bilateral juristic act founded on agreement
▪ Being a unilateral declaration of will by one party, an offer cannot in itself give
rise to binding obligations
▪ Does however have the effect of placing the offeree in a position to call a
contract into being by accepting the offer
▪ Until acceptance is given, the offeror may withdraw the offer unless he is bound
by another agreement not to do so
▪ Agreement not to withdrawn an offer = option
Requirements for the valid formation of an offer

1. Offer must be firm
• Must be made with the necessary animo contrahendi → with the intention that its acceptance
will call into being a binding contract
• If a party makes a tentative statement to another to ascertain if they would be willing to enter
into negotiations, then this requirement is not fulfilled
• Not easy to determine whether a particular declaration amount to a firm offer – question of fact
to be decided upon with regard to circumstances
2. Offer must be complete
• It must contain all the material terms of the proposed agreement - there cannot be further
matters that have to be negotiated before the overall agreement can take effect
• In large commercial contracts various issues have to be settled before the deal may proceed –
in such cases it is said that “nothing is agreed until everything is agreed”
• However, if the intention of the parties is that the preliminary agreement in respect of issues A,
B and C should be binding on them, irrespective of whether they ever reach consensus on
outstanding issues D and E, then of course the preliminary agreement will indeed constitute
a binding contract. If agreement is subsequently reached on issues D and E, the preliminary
agreement will be incorporated into and superseded by the more comprehensive agreement
3. Offer must be clear and certain
• Should be enough for the addressee merely to answer “yes” for a contract to come into being
• If the offer is vague i.e fails to give a reasonable clear indication of offerors intention - no
acceptance can create a binding obligation because it would be impossible to determine the
content of the obligation.
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o Eg: if Christine says to Sipho “I will buy your car if it suits me”, then Sipho cannot accept
the offer because it is to vague. In this case, the agreement would be regarded as void
for vagueness
• Difference between vagueness and ambiguity
o Vague = unclear = could be declared void for vagueness
o Ambiguous = 2 or more reasonable interpretations → Court looks at extrinsic evidence
and rules of interpretation of contracts to determine the meaning of the relevant
provision
• Courts reluctant to strike down agreements that were intended to have legal effect
o They recognise that business people are not expert drafters, and are often content to
conduct their affairs with only roughly-drawn up, incomplete agreements in hand, thus
relying on one another’s good faith and commercial expediency to make such
agreements work
4. Consumer Protection Act 68 of 2008 (“CPA”)
• Section 22: Offer must be in plain and understandable language
o The producer of a notice, document or representation that is required to be provided to
a consumer must provide that notice, document or representation in the prescribed
form if any, or in plain language if no form has been prescribed
o Test for plain and understandable language → will be regarded as being in plain
language if a consumer in that class of persons for whom the notice, document or
representation is intended, with little experience as a consumer of such goods and
services and average literacy skills, could reasonably be expected to understand the
content, significance and import of the notice, document or representation without
undue effort
• Section 25: Offer must disclose whether the goods are reconditioned or grey-market
goods
o If your offer is to sell reconditioned, rebuilt or remade goods, then you must
conspicuously (“clearly”) disclose that these goods are reconditioned, etc., or
o If your offer is to sell grey-market goods, i.e. any goods that bear a trade mark, but
have been imported without the approval or licence of the registered owner of that trade
mark, then you must conspicuously disclose that this is the case (e.g. if you sell
Samsung TVs without being a registered provider)
• Section 31: Negative option marketing is prohibited
o A supplier may not promote goods or services on the basis that the goods or services
will be supplied unless the client declines the offer
o Suppliers may also not offer to enter into an agreement for the supply of goods or
services, or induce a person to accept any goods or services or enter or amend such
an agreement on such a basis
o Such agreements and amendments are rendered void
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• Section 32: customers have the right to a cooling-off period if goods were marketed to
them directly
o If you engage in direct marketing (where you approach the consumer in person at a
place other than your usual place of business) you must inform the consumer that, in
terms of S16 CPA:
▪ He or she is entitled to rescind any contract concluded by notice to the supplier
in writing, or another recorded manner, within 5 days of, the later of, either the
date on which the agreement was concluded, or the date on which the goods
were delivered to the consumer
• Section 33: Catalogue marketing is regulated
o If one engages in catalogue marketing/ indirect marketing (don’t directly interact with
the consumer) the supplier must disclose all sorts of information about itself (including
name and license and registration number; address and contact details; sales record
information; currency in which amounts are payable; supplier’s delivery arrangements;
supplier’s return, cancellation, refund and exchange policies; complaint procedure,
etc.)
Offers to the public

• Offers of reward, advertisements, and auction sales, among others, pose numerous problems
in terms of offer and acceptance
• Point of Departure → Must be directed toward some form of addressee(s)
• An offer can only be accepted by the addressee – but, who is the addressee of an offer?
• Although one cannot contract with the general public, an offer can be made to the public at
large and then individual contracts concluded with the members of the public who accept that
offer
o Carlill v Carbolic Smoke Ball Company [1893]:
▪ Claim instituted by Ms Carlill, she wanted to claim a £100 reward which was
advertised by the Carbolic Smoke Ball Company.
▪ The advertisement stated that you would be entitled to a reward of £100 if you
used the “Carbolic Smoke Ball” and still got influenza (which it was supposed
to prevent one from contracting).
▪ A customer followed the instructions and shortly after contracted influenza
▪ LQ: Was this intended to create a binding obligation?
▪ The Court decided for the plaintiff on the grounds that the advertisement
amounted to an offer to any member of the public, and that the offer was
accepted by the plaintiff when she complied with the conditions mentioned in
it
▪ This was found to be a firm offer – the advertisement even stated that £1 000
had been deposited at the bank to be claimed by whoever got influenza.
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Advertisements
• Question: is an advertisement an offer?
• General rule: Advertisements are not intended as offers, but as invitations to do business
• The advertisement invites the client to make an offer – under normal circumstances
o Advertisement invitation to do business → invites clients to make an offer →
person/company advertising may then accept
• E.g. Checkers advertising a crate of grapes for R20
o It makes more practical sense that the advertisement is an invitation to make an offer
rather than being an offer in itself, because if the advertisement constituted the offer
and the shop then ran out of crates of grapes, the shop would be bound to contracts
with consumers who want the grapes and have thus accepted the offer, but the shop
would be unable to perform (and as acceptance has already occurred, it cannot revoke
its offer) → by considering the advertisement as an invitation to make an offer, the shop
is the party who accepts the offer (only when it is able to perform) and concludes the
contract for the crate of grapes ie: invites members to do business, member then
makes offer and the shop accepts
• Crawley v Rex 1909:
o An advertisement board was placed outside a shop which advertised a particular brand
of tobacco at a very low price
o Crawley wanted to buy from the shop in terms of the advertisement, so he went and
bought a pound of tobacco
o Crawley later returned to buy another pound of tobacco, but it was clear that he was
not acting in good faith – he had been instigated by a rival shopkeeper to go in and buy
up the shop’s cheap stock. He was then asked to leave by the shopkeeper, but he
refused, and so the police were called to remove him. He was thereafter convicted of
a criminal offence for remaining unlawfully on the premises after being requested by
the owner to leave.
o Crawley argued that he was lawfully there to accept an offer advertised by the shop,
and therefore was entitled to remain there until the contract was carried out.
o The Court said that this was not the case – the advertisement was only an invitation
to do business (and that no contract was thus concluded), and that therefore, if the
shop does not want to do business with you, you cannot force them to do so
o The Appeal was therefore dismissed
• Whether a particular statement constitutes an offer depends on what the intention behind the
statement was, or the impression reasonably crafted in the mind of the person to whom it was
directed
• Sec 30 CPA: bait marketing – banned by the Act
o A supplier may not advertise goods or services as being available at a specified price
in a manner that may result in consumers being misled or deceived in any respect as
to the actual availability of the goods at the advertised price
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▪ Tactic used to get consumers in store in the hope that they will find an
alternative product to buy.
o Furthermore, if the supplier places a limit on the availability of goods, it must make sure
these goods or services are available to the extent of the expressed limit
o E.g. If a shop advertises HD Sony TVs, but doesn’t have enough stock to fulfil the offer
but used the offer to get you to their shop where they offer you other TVs instead
o Consequences include fines for transgressors
• Sec 23 CPA: incorrect pricing
o Generally, the supplier or advertiser is bound by the advertised price
o Qualified by sec 23(9): if the price contains an inadvertent and obvious error then the
supplier is not bound if (a) they correct the displayed price and (b) they took reasonable
steps to inform consumers to whom the price was displayed of this error
o E.g. Mercedes advertised for R8 900, instead of R89 000
Promises of reward
• Promises of reward commonly offered to any person who performs a certain act – by performing
this act, the person thus accepts the offer and becomes contractually entitled to the award
• Bloom v American Swiss Watch Co 1915:
o The advertising of a reward might be construed as an offer to the public.
o The first person who, consciously responding to the advertisement, performed the
required act (in this case, furnishing information to the police concerning the robbery of
the American Swiss store) would have accepted the offer and thus become
contractually entitled to the reward
• The offer of reward must be sufficiently certain in order for it to be accepted, it cannot be a
vague offer where the content or amount of reward is unspecified – vagueness and uncertainty
lead to unenforceability
Calls for tenders

• Calls for tenders are not offers that are open to acceptance by the highest tenderer
• At most, it is an invitation to potential tenderers to make offers that will be considered after the
closing date for the particular tender
Auctions
• Three types of contractual relations occur in auctions, and each could be concluded by way of
an offer and acceptance:
o The seller will approach the auctioneer and conclude a contract which allows the
auctioneer to sell the item at auction
o Attendees to the auction will either be members of the auction house (and thus have
agreed to membership terms) or “agree” to displayed signs at the auction house which
stipulate the terms and conditions of the auction house (e.g. the auctioneer’s decision
is final; the auctioneer is entitled to re-open bids)
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o When the auctioneer awards the bid to a participant then a sale agreement will be
concluded between the seller of the item and the purchaser (with the sale merely
facilitated by the auctioneer)
• 2 different types of auctions:
Simple auction Auction subject to a condition

• Bidder makes offer • With reserve
• Auctioneer considers o Reserve price is set
• Auctioneer then accepts or rejects o Sold to highest bona fide bidder,
provided that the offer is not
lower than the reserve price
• Without reserve
o Article will be knocked down to
the highest bona fide bidder
o Auctioneer is making an offer to
sell to the highest bidder by
calling for bids
• Effect of auction conditions on a contract

o Conditions can be advertised prior to auction in newspapers or a catalogue
o Conditions are not binding – they are subject to change
o The auctioneer is only bound when a ground for liability arises
▪ Contractual liability arising from 2 potential contracts:
(a) contracts that bind parties to auctions conditions, and
(b) substantive contracts of sale
• Construction of an auction held subject to specific conditions
o For example, payment in cash on delivery and that auction will be held without reserve
o Auctioneer is informing potential purchasers that this is the basis on which the auction
will be held – makes an offer subject to specific conditions
o As with any offer, the auctioneer is free to revoke this offer before it has been accepted
o Offer is made to undefined persons – auctioneer does not address the offer to any
specific bidder and thus any bidder may respond to it
o Any person bidding for an article offered for sale makes it known that he agrees to the
conditions laid down by the auctioneer, and a contract binding the bidder to the auction
conditions therefore comes into being
o Auctioneer’s offer has thus been accepted and is now binding on both parties
o Auctioneer makes the offer to sell to the highest bidder and is bound to accept the
highest bona fide bidder, who is then obliged to pay in cash on delivery in terms of the
auction conditions
o If potential purchaser makes an offer without acquainting himself with the auction
conditions, he may labour under a mistake regarding the contract, but because the
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potential purchaser has behaved unreasonably he cannot rely on an absence of

consensus
o Section 45(4) CPA: notice must be given in advance that a sale by auction is subject
to a reserve (upset) price, or right to bid by or on behalf of the owner or auctioneer
▪ If such notice has not been given, he may not bid or employ any other person
to bid at the auction
▪ If Section 45(4) is contravened, a consumer may approach a court to declare
the transaction fraudulent
o Section 51(1)(a)(iii) and (3) CPA: any transaction that subjects a consumer to
fraudulent conduct is void
Termination of an offer
• The offer will terminate in the following circumstances:
a. If the offer is rejected by the offeree
o Expressly or impliedly
o Eg of impliedly - by tendering a counter-offer, such as a qualified acceptance
b. Either the offeror or offeree dies
o Offer creates no obligations, so no debt passes to the estate of the deceased offeror
and no contractual right passes to the estate of the deceased offeree
o If the offeror has promised not to withdraw the offer, such promise constitutes an option
which is binding on the estate of the offeror, and the offer thus does not terminate upon
the death of a party
c. The offeror revokes the offer
o Provided that the offeror has not promised to revoke the offer for a certain period, an
offer can be withdrawn at any time prior to acceptance
o Since revocation is an expression of intention, it takes effect only when communicated
to the mind of the offeree – thus, if the offeree communicates acceptance of the offer
to the offeror before learning of the revocation, a contract is concluded
d. Effluxion of the prescribed time or of a reasonable time
o If the offeror prescribes a time limit for acceptance, the offer lapses automatically
if not accepted within that prescribed period
▪ Eg: this offer will only be open until Monday at 11:00, following which it will
automatically lapse
o If the offeror has not prescribed a time limit for acceptance, the offer will lapse
within a reasonable period of time (if you don’t revoke the offer)
o What constitutes a reasonable time will depend on the facts of the particular case
e. Either party loses his or her legal capacity to act
f. The offer is accepted, the contract thus comes into being and the offer is terminated
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Acceptance
• Acceptance: a clear and unambiguous declaration of intention by the offeree wherein she
unequivocally assents to all the terms of the proposed offer
• Acceptance may be express (in writing) or tacit (through conduct) – but silence will not ordinarily
be taken as assent
Requirements for valid acceptance

1. Acceptance must be unqualified
• Must be a complete and unequivocal assent to every element of the offer
• The “mirror image” rule: Can only be a valid acceptance where the whole offer and nothing
more or less is accepted
• If acceptance is conditional or contains new terms or leaves out original terms, there is no clear
acceptance & no consensus
• Qualified acceptance constitutes a counter-offer which the original offeror may accept or reject.
• Ambiguous acceptance does not qualify a valid acceptance
2. Acceptance must be by the person to whom the offer was made
• Offers to unspecified persons i.e. public/class, can be accepted by any member of that
public/class.
• Where offered to a specific person/s, an offer may only be accepted by those person/s.
3. Acceptance must be a conscious response to the offer
• The offeree must be aware of offer
• Particularly relevant in the case of an offer of reward
• Bloom v American Swiss Watch Co 1915:
o The respondent company offered a reward to anyone who provided information leading
to the arrest of thieves who had stolen jewellery from the company
o A person furnished such information whilst ignorant of the offer of reward. When he
subsequently became aware of it, he claimed the reward from the company.
o Court held that he could not recover the reward because “until the plaintiff knew of the
offer he could not accept it, and until he accepted it there could be no contract, for a
contract requires that there should be consensus of two minds, and if the one
did not know what the other was proposing, the two minds never came together”
4. Acceptance must be in the form prescribed by the offeror (if any)
• The offeror as dominus/initiator is entitled to prescribe any method of acceptance he deems fit
o If he does so, no other method of acceptance would suffice
Other elements of acceptance

When and where acceptance takes place
• Contract formed soon after acceptance but important to know when such acceptance takes
effect
• Inter praesentes: parties contract in each others presence
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o No time delay between declaration of acceptance and ascertainment of acceptance

o Contract deemed to be concluded immediately
• Inter absentes: parties contract at a distance
o Usually a time delay between declaration of acceptance and ascertainment of
acceptance
o This raises the question of – when does the contract come into effect?
• Time and place of contracting is essential for the purpose of determining issues of jurisdiction
and within the context of criminal implications
o In the past, the problem of determining the time and place of the conclusion of a
contract mainly arise in the case of postal contracts, where the delay between the
declaration of acceptance and the ascertainment of acceptance can be lengthy
o Today, quicker methods of communication, for example fax and email, allow for a
lesser delay
Various theories to determine where and when acceptance takes effect:

• Declaration Theory: the contract comes into being when and where the offeree expresses
acceptance – that is, when he writes or signs the letter of acceptance
• Reception Theory: the agreement comes into being when the letter of acceptance reaches
the address of the offeror
o Usually takes 3 days for registered post, and 1 week for normal post
• Expedition Theory: the contract comes into being when and where the offeree posts his letter
of acceptance
o Scope of this exception- applies only when all of the following circumstances are
present:
▪ Offer made by post or telegram;
▪ Postal services are operation normally;
▪ Offeror has not indicated contrary intention, expressly or tacitly; and
▪ Contract is a commercial one
o This exception does not apply to contracts concluded by telephone or fax or where the
offer is made inter praesentes
• Information Theory: the agreement is concluded when and where the offeror learns or is
informed of the acceptance – that is, when he reads the letter of acceptance
o The general rule in our law
o Holds that the basis for contractual liability is actual and conscious agreement between
the parties. Therefore, the offeror must learn of the acceptance of his offer before actual
consensus can be said to have been attained. Until then, the minds of the parties have
not truly met
o Since consensus if primary basis for contract the general rule is that contract only
comes into existence once the acceptance is communicated to the mind of the
offeror → must be meeting of the minds of offeror and offeree
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o The information theory does not apply (exception to the general rule):
▪ Where the offeror stipulates a different method of acceptance
▪ Information theory is subject to the qualification that the offeror as dominus
(proposer) may dispense with the need for acceptance to be
communicated to him, or can indicate an earlier time for acceptance etc.
▪ Such waivers of acceptance can be express or implied from the
circumstances
▪ In postal contracts
▪ Expedition theory applied as a default in terms of postal contracts
▪ On the basis of a legal fiction – making offer through post, offeror is
deemed to have authorised acceptance by post & also to have waived the
requirement of acceptance unless indicated otherwise
▪ The post office is not the agent of the offeror
▪ Cape Explosive Works Ltd v South African Oil and Fat Industries;
Cape Explosive Works Ltd v Lever Brothers (South Africa) Ltd 1921
➢ SA Oil and Fat Industries wrote a letter from Delmore in Gauteng
to the plaintiff in Somerset West in the Cape, offering to sell
glycerine to the plaintiff at a certain price
➢ The Plaintiff accepted the offer by letter, and at a later stage, also
accepted by letter another offer to sell glycerine, from Lever
Brothers in Durban
➢ Both letters of acceptance posted at Somerset West
➢ In actions on the contracts instituted by the plaintiff in the Cape
Provincial Decision, the defendants took exception to the court’s
jurisdiction on the ground that the contracts were not entered into
in the Cape, but in Gauteng and Natal respectively, since that was
where the letters of acceptance were received and read by the
respective defendants
➢ Court held that the contract was concluded in each case when the
letter of acceptance was posted at Somerset West. Thus, both
contracts were concluded in the Cape and the Cape Provincial
Division has jurisdiction over the matter
➢ Court justified this departure from the general rule on various
grounds, including commercial convenience, the need to protect
the offeree who otherwise would be at a loss to know when the
contract was concluded, and the general reliability on the post
office, leading to a presumption that a properly addressed letter
will reach its destination. Of course, this presupposes the normal
operation of postal services, and when those services are
disrupted, the expedition theory would probably not apply
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➢ The decision in this case was approved by the Appellate Division

in Kergeulen Sealing and Whaling Co Ltd v Commissioner for
Inland Revenue 1939
▪ In electronic contracts
▪ Contracts entered into by means of email, SMS or other means of
electronic communication are governed by the Electronic
Communications and Transactions Act 25 of 2002
▪ In terms of this legislation, an agreement concluded between parties by
means of data messages is concluded at the time when, and the place
where, the acceptance of the offer is received by the offeror
▪ Consequently, the reception theory applies, and a data message is
regarded as having been received by the offeror at his usual place of
residence or business when the complete data message enters an
information system designated or used for that purpose by the offeror and
is capable of being retrieved by him
Criticism of expedition theory and the points mentioned in Cape Explosive Works:
• Although it is true that the offeror may waive the requirement of notification of acceptance, it is
a fallacy to assume that he does so merely by using the postal system to communicate the
offer. The posting of the offer might indicate that a reply by post is anticipated but in itself is
insufficient to ground an inference of waiver
• The justification of commercial convenience is unconvincing
• Adoption of the expedition theory implies that a posted acceptance may not be revoked or
neutralised by a faster means of communication
Revocation or neutralisation of the posted acceptance

• Question that arises is, since the expedition theory provides that the contract comes into being
as soon as the offeree posts his letter of acceptance, what if the offeree wishes to revoke that
acceptance? Does the expedition theory operate too harshly against the offeree? Would it not
be fairer if an acceptance could be revoked at any time before it comes to the attention of the
offeror?
• The information theory seems to be the most equitable in these circumstances. In terms of this,
the offeror may revoke his offer before acceptance but not after the offeree has communicated
his acceptance to the offeror. The contract only arises when and where the offeror learns of the
acceptance, thus the offeree may revoke his acceptance at any time before the offeror becomes
aware of the acceptance
Breaking off negotiations

• Parties involved in negotiating a contract are generally free to terminate their negotiations
whenever they so wish
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o However, negotiations may create the expectation that a contract will eventually come
into being
▪ This may have legal consequences where one of the parties has incurred
expenditure in preparation for performance under the expected contract, and
will suffer a loss if the other party terminates the negotiations
• In many legal systems, the right to break off negotiations is restricted by normative
considerations. It is considered that entering into negotiations creates a certain relationship
between the parties that is governed by good faith and objective reasonableness; each party is
expected to have due regard to the legitimate expectations and interests of the other.
o Breaking off negotiations without some good reason for doing so might thus result in
liability losses caused to the other party
• SA Courts have recognised that the principle of good faith applies to pre-contractual
negotiations, but the implications of this still have to be worked out
• No doubt, parties are still free to break off negotiations for any reason whatsoever. Generally,
they do not incur delictual liability for doing so since a party who incurs expenditure, relying
upon a representation that the contract will be concluded, usually takes a calculated business
risk. Nevertheless, it is not too difficult to envisage situations where such reliance might in fact
be reasonable, in which case withdrawal from the negotiations might come at a considerable
cost in damages
Pacta de contrahendo
• Often before an offer has been made or accepted, the parties enter into ancillary agreements
concerning the main agreement that might follow
• Pacta de contrahendo (singular- pactum de contrahendo): contracts about contracting – a
contract aimed at the conclusion of another contract
• SA Law recognises 2 forms of pacta de contrahendo:
a. Options
b. Preference Contract
Options
• Option: an agreement restricting an offeror’s right to revoke the offer by agreeing to keep the
offer open for a certain period of time
• Being a binding contract, its effect is to make the offer irrevocable for period of time
• Holder of option is in a strong position as has power to bring the contract into existence by the
unilateral act of exercising the option i.e accepting the offer
• Holder of option is entitled but not obligated to conclude the main agreement
• An option is a legally binding contract containing the possible formation of another contract
• Option is ancillary to main agreement.
• Option can be made gratuitously or for consideration
• Option to buy = “call option”
• Option to sell = “put option”
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• Options might be granted on the understanding that it is exercisable only by the grantee. or
might be transferable to 3rd parties. If the option is transferable it might have considerable value
• Juristic nature of an option:
o Offer to enter main agreement (the main offer)
o Agreement to keep the main offer open for a certain time
o Main agreement is the subject matter of the option
o Option is a contract in its own right – must satisfy all requirements for valid contract –
NB consensus
o Must be analysed in terms of offer & acceptance – can be confusing
• Earlier views on the nature of an option:
o Some early decisions suggest confusion on the legal nature of an option
o Van Pletsen v Henning 1913: Solomon J stated “when an option is given by a seller,
he is bound and cannot withdraw his offer; the contract is a unilateral one and becomes
bilateral upon its acceptance”
o Boyd v Nel 1922: court observed that Solomon J could not have considered an option
to be merely an offer to sell because he called it a unilateral contract that becomes
bilateral when the option is exercised; and then added “that that is the correct legal
position cannot admit of any doubt”
o Hersch v Nel 1948: Davis AJA was rightly critical of this description of an option as a
unilateral contract, stating that this viewpoint “obscures the fact that an option, like any
agreement, has two parties to it. It is no mere offer to sell: it is an agreement seriously
entered into – often for a very considerable money consideration – between two
contracting parties, and from that agreement legal results flow before it is ever turned
into a contract of sale by its exercise”.
▪ The learned judge, after observing that an option has been analysed as
comprising an offer to sell together with an agreement to keep that offer open
for a certain time, expresses the view that an option might better be seen
“simply as an agreement between the giver and holder of the option by which
the giver has bound himself to sell a certain thing to the holder at a certain
price if the holder shall require him to do so within the time fixed by the option;
by this agreement the giver grants and the holder acquires a right to buy”
• Unilateral declaration that the offer is revocable:
o Is granting of option the only way to render offer irrevocable or can unilateral
declaration by offeror have same effect?
o SA Law does not recognise unilateral promises as binding, and theoretically, the
declaration of irrevocability should be seen as an offer of an option that requires
acceptance if it is to be binding. Such acceptance may be tacit
o Labour Appeal Court in University of the North v Franks 2002: “where an offer is
(expressly or tacitly) stated to be irrevocable for a given period and communicated to
the offeree it becomes irrevocable upon receipt unless the offeree rejects the
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irrevocability. To require a mental acceptance would be meaningless in practice since

this cannot be evidence. Such requirement would merely pander to theory. To require
notification of acceptance of the irrevocability would set a standard which in normal
business practice will not be followed and will be regarded as rather foolish.”
• Legal effect of an option:
o Option creates rights & duties for parties.
o Grantor of option incurs dual negative obligations:
a. not to withdraw the offer; and
b. to do nothing to prevent the contract from existing by way of acceptance of the
offer.
o The grantee/holder of the option has correlative rights to insist to keep offer open & his
preferential right to contract through the exercise of the option should not be prejudiced.
o Effect, therefore, of the option is to render the offer irrevocable
▪ Any attempt by the grantor to revoke the offer is not merely a breach of
contract, it is also quite ineffectual: the offer remains open for acceptance
▪ Grantee must thus ignore the purported revocation and insist on the full period
of the option before deciding whether or not to exercise it
• Duration of option:
o Usually specifies a time period within which the option must be exercisable - failure to
exercise option in that time results in automatic termination of the option
o No time limit specified – may be regarded as void for vagueness
▪ Better View: option must be kept open for a reasonable time
o Termination of option
▪ Death of either party – option ends unless contract indicates otherwise
▪ Where an option is personal to the grantee, so that it cannot be transferred, it
terminates on the death of the grantee
▪ An election by the grantee not to exercise the option will cause it to lapse, as
in any
• Transferability of option:
o General Rule: personal rights may be freely transferred by cession.
• Formalities- options to buy or sell land:
o 2 contracts may arise when dealing with an option:
a. the option itself
b. main contracts
o Formalities used in main contract should be used for option.
o Option must be in writing and signed for acceptance of offer
• Remedies for breach of an option:
o Consequences for breach determined by applying the general principles of contract
that regulate breach & remedies
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o General pattern of remedies for breach of contract: Provided that the breach is a
material one - innocent party has election to cancel/uphold contract
▪ Cancel Contract: contract is terminated and innocent party entitled to restitution
or performance /damages
▪ Uphold Contract: entitled to order for specific performance – court compels
honouring of contractual obligations / damages
o Damages:
▪ Calculated according to innocent party’s so-called positive interest
▪ placing the innocent party in the same financial position that he would have
been in if breach did not occur
▪ Positive Interest damage compensates not only for reliance losses
[expenditure incurred in preparing to perform under contract] but also
expectation losses [net profit that innocent party would have made]
Preference Contracts
• Preference contract: an ancillary agreement whereby one person (grantor) binds himself to
give preference to another person (grantee) should he decide to conclude another agreement
(being the main agreement)
o Right to be preferred = right of first refusal
o Where the contemplated agreement is one of sale the right to be preferred = right of
pre-emption
• Right of pre-emption (where contemplated agreement is one of sale)
o Right to be given preference in the case of a sale of property
o Grantor of pre-emptive right under no obligation to sell
o Grantee obtains preferential right to buy when grantor does decide to sell.
o Form of pre-emptive rights depends on the intentions of the parties.
▪ Eg: it might oblige the grantor A (if she decides to sell her property) to address
an offer to the grantee B; or it might require A merely to notify B that she has
decided to sell, so that he can address an offer to her
o Right of pre-emption V option:
▪ Option: grantor already made offer to grantee
▪ Power to conclude lies with the grantee
▪ Option presupposes existence of a valid offer – all terms of the option must
be set with certainty.
▪ Pre-Emption Agreement: no firm offer – only an undertaking to make offer to
grantee if the trigger event occurs
▪ Grantor retains power to decide to sell
▪ Don’t have to list all the terms since there is no offer – must have a
determinable content but terms don’t have to be stipulated.
• Obligations of the grantor:
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o The obligations created by the pre-emption agreement depends on the terms of

agreement
o If intentions unclear, one has to fall back upon the default rules of Common Law.
Unfortunately, those rules are in themselves not entirely clear
o Pre-emption agreement constitutes a restraint upon alienation, as it prevents the
grantor from lawfully selling to 3rd parties during existence of pre-emptive right.
▪ Thus, imposes a negative obligation on the grantor → cannot sell to 3rd parties
without first affording the grantee an opportunity to buy the property
▪ Grantee has a correlative legal right against the grantor that he should not
sell
o Precedence indicate the position that after the trigger event occurs, the grantor is under
duty to make an offer to grantee.
• The trigger event in a pre-emption agreement:
o Whilst the negative obligation of the grantor comes into play as soon as the pre-emptive
agreement is concluded, the positive obligation is conditional upon the occurrence of a
trigger evet
o What constitutes the trigger event is a matter of interpretation of the agreement at hand
o Question whether the pre-emptive right had been triggered by the grant of the option?
o If parties failed to specify what will bring pre-emptive right into operation – court will rely
on default construction of pre-emptive agreements
o Nothing short of a valid offer should suffice as the trigger event
• Offer must be bona fide:
o Upon the occurrence of the trigger event, the grantor cannot free himself of obligation
under the pre-emption agreement by making an unreasonable offer to grantee.
o What constitutes a bona fide offer?
▪ Pre-emption agreement stipulates terms – offer must be on those terms
▪ 3rd party made genuine offer to grantor – grantee must be prepared to match
those terms even if price is above market value
▪ Grantor indicates willingness to sell to 3rd party on certain terms – offer to the
holder of the pre-emptive right must be on no less favourable terms
▪ If not any of the above – bona fide offer can be determined by objective criteria
• Duration of the offer:
o Roman-Dutch Law: offer had to be kept open for at least 2 months
o Today: parties agree for offer to be open for a reasonable period
▪ Flows from the requirement that the grantor should act in good faith
▪ Should this not be the case, the grantor could discharge the pre-emption
agreement by making an offer to the grantee and by then withdrawing it before
the latter has had a reasonable opportunity to consider the offer
• Remedies for breach:
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o Material breach → grantee has an election to either cancel the contract or uphold the
contract
▪ If cancels the contract:
▪ Pre-emption agreement is terminated and the grantee is entitled to
restitution of any amount of money he might have paid for the pre-emptive
right
▪ In addition, grantee may recover as damages the loss of profit he would
have made on the main contract of sale, provided he can prove on a
balance of probabilities that if the grantor had honored his obligation by
making an offer, the grantee would have accepted the offer, and also that
the ensuing sale would have been a profitable one. Alternatively, if the
grantee can prove that, but for the grantor’s breach, he would have sold
the pre-emptive right at a profit, he may recover the loss of profit on that
transaction
▪ If upholds the contract:
▪ Where the grantor’s negative obligation not to sell and transfer the property
to a 3rd party without first giving the grantee an opportunity to acquire it, he
would be entitled to claim specific performance of the pre-emption
agreement
▪ What remains uncertain is whether the grantee is entitled to specific
performance of the grantor’s positive obligation to address an offer to him
so that, by accepting it, he can conclude a sale
➢ In principle, the grantee should be entitled as of right to this relief,
subject only to the court’s discretion to refuse it in appropriate
circumstances
➢ Courts have, however, been reluctant to grant such an order,
presumably for reasons associated with freedom of contract
➢ Associated SA Bakeries (Pty) Ltd v Oryx & Vereinigte
Backereien (Pty) Ltd 1982: court accepted that that the grantee
of a right of pre-emption should have some method of positively
enforcing his or her right; to expect the grantee to be satisfied
merely with a claim for damages in the event of breach was not in
accordance with the dictates of justice. The court developed a new
doctrine according to which, when the grantor sells the property to
a 3rd party in breach of a pre-emptive undertaking given to the
grantee, the grantee may “step in the shoes” of the 3 rd party by
addressing a unilateral declaration of intent to the grantor. The
effect of this is to create a new contract of sale between the grantor
and grantee on terms identical to those in the agreement between
the parties originally. This does not put an end to the sale to the
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3rd party, but rather creates a new sale standing alongside the sale
of the 3rd party. Since this new sale flows from the pre-emption
agreement, the principle “first in time, first in law” applies and the
grantee is entitled to transfer of the property in preference to the
3rd party, provided that transfer has not yet occurred. The 3rd party
will then have a claim for damages against the grantor. If the 3 rd
party has already taken transfer, the grantee’s right to recover the
property will depend on principles discussed earlier - if the 3rd party
is a bona fide successor for value, the doctrine of notice cannot
apply and the grantee will be the one left merely with a claim for
damages against the grantor.
Question on pacta de contrahendo
Sandhia Seedat invites her friend, Minesh Moodley, over to her house. During Minesh’s visit,
Minesh admires Sandhia’s house and asks Sandhia whether she would be willing to sell the
house to him. Sandhia tells Minesh that she is not interested in selling her house at the moment
but agrees with Minesh that, if she does decide to sell the house in the future, then she will offer
the house to Minesh before she offers it to anyone else. The set of facts provided above
suggests the possible conclusion of a contract between Sandhia and Minesh in the future which
is known as a pacta de contrahendo. Answer the questions that follow:
Define pacta de contrahendo and discuss the two forms the contract can take. (5 marks)
Identify which form of pacta de contrahendo applies to Sandhia and Minesh’s conversation. (2
marks)
With reference to relevant case law, discuss whether the pactum de contrahendo between
Sandhia and Minesh should meet the same requirements as the envisaged contract of sale. (15
marks)
Would the position in Q.2.3 differ if the object of the sale were movable property? (3 marks)
A pactum de contrahendo, plural being pacta de contrahendo, is known as an ancillary agreement

aimed at the conclusion of another contract, essentially being “contracts about contracting”. The law in
South Africa currently recognises two forms of pacta de contrahendo, namely the option and the
preference contract.
An option is an agreement to keep an offer available for a specified period of time thus making
the offer irrevocable during that said time. The main offer is already established alongside the terms
of the main agreement, and the grantee is placed in a powerful position since the grantor is obliged to
sell if the grantee so wishes to make use of his option.
This differs to a preference contract, which is an agreement whereby one party binds himself to
give preference to the other party in the case should he decide to conclude an additional main
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agreement in the future. This right of preference is also known as a right of first refusal, or a right
of pre-emption where the future agreement is a contract of sale. In terms of this agreement no
principal offer has yet been made neither are the terms of the main contract decided, and the grantor is
placed in a strong position since they are not obliged to sell the property if they do not wish, although
their right to alienate property to a third party is restricted.
The form of pactum de contrahendo present in the situation of Sandhia and Minesh is the preference
contract involving a right of pre-emption. Thus, Sandhia, as the grantor, undertakes to sell the house to
Minesh, the grantee, over anybody else should she wish to sell the house at a later stage. Sandhia is
not however obliged to sell the house in the future, it is only if she so wishes that she will be legally
bound to give preference to Minesh.
It has already been established that the six requirements for the valid conclusion of a contract are
consensus, capacity, formalities, legality, possibility and certainty. However, it has also already been
established that a pactum de contrahendo is an ancillary agreement, merely a contract to contract. The
question therefore arises whether it is necessary for a pactum de contrahendo to meet the same
formality requirements that a main contract of sale must?
Besides the other stated requirements for the valid conclusion of a contract, the formality requirement
only applies where the parties have imposed them or where they are imposed by law. Where such is
so, but not complied with, a contract will be regarded as void ab inititio. Regarding contracts of sale
for immovable property, the Alienation of Land Act 68 of 1981 (“Alienation of Land Act”)
provides that the contract must be in writing and signed by the parties, taking form of a deed of
alienation, therefore forming a prescribed formality imposed by law.
In the case of Hirschowitz v Moolman the question of whether a pactum de contrahenda need meet
the same requirements as a contract of sale came under consideration. The Appellant had previously
entered a lease agreement with the respondents over their farm in which he was given a right of pre-
emption through a clause stating that in the event that the owners wish to sell the farm during the
appellant’s period of lease, they would give the appellant the right of preference to buy the farm within
a month of the owner’s notice. However, the owners soon after entered into a redistribution agreement
with a third party, known as the third respondent to this case, stating in clause 4 of that specific
agreement that at any stage during the agreement the third party would have an exclusive right of
preference to buy the farm at a calculated purchased price. According to the appellant, this stood as
the “trigger event” for his right of pre-emption. After the appellant’s attorney notified the first and second
respondents of such, the respondents cooperated and a deed of sale was drafted, which the appellant
signed within the prescribed one-month period. Thereafter, the third respondent intervened and the first
and second respondents entered into a written agreement with said party not to sell the farm and notified
the appellant that the notice they had originally sent accepting his offer had in fact been rejected. After
requesting a formal offer from the respondents to which the appellant was asked to hold the matter in
abeyance, the appellant instituted legal proceedings. The appellant therefore claimed an order that the
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first and second respondents be obliged to offer the farm to the appellant based on the same terms and
conditions as set out in clause 4 of the third respondent’s agreement and directing that such offer be
made within 30 days of a compliance order being made and in accordance with the formalities for a
contract of sale. The application was dismissed with costs on the basis that the pre-emptive right
provided no ground for the appellant to demand the sale of the farm. The matter was then taken on
appeal and the appeal court was left to decide whether compliance with the requirements for a valid of
contract of sale were required and whether the second respondent was bound by the lease agreement
with the appellant. In conclusion, the court decided that the nature of an option and pre-emptive
right being pacta de contrahendo is an agreement to enter into a contract and must
consequently, at common law, meet the same requirements envisaged in the law of contract.
Thus, if the envisaged contract was to be in writing, so was the pactum de contrahendo.
The more recent case of Mokone v Tassos Properties CC and Another changed this position. In
this case, Mokone entered into a written lease agreement with Tassos Properties for a period of one
year, renewable upon expiration of this period. A clause in the lease agreement gave Mokone an
express right to pre-emption should Tassos Properties wish to sell the property. Upon expiration of the
one-year period, Mokone and Tassos agreed to an extension of lease by way of a manuscript
endorsement on the face of the original written lease agreement. A few years later, Tassos Property
alienated their property to a third party, serving as the “trigger event” for Mokone’s right of pre-emption.
Tassos Properties argued that the extension of the lease agreement did not constitute an extension of
the clause containing Mokone’s right of pre-emption, and that since the clause granting the right of pre-
emption had not been signed by both parties it was invalid on the grounds of non-compliance with the
prescribed formalities contained in the Alienation of Land Act. In its ratio, the majority held that the right
to pre-emption does not constitute an alienation of land in itself and need not comply with the formalities
set out in the Alienation of Land Act. Thus, the court disagreed with the court in the case of
Hirschowitz v Moolman and stated that a right of pre-emption need not satisfy the requirements
for a valid contract. Thus, the right of pre-emption was enforceable despite the agreement
lacking Mokone’s signature.
In conclusion, unlike an option which must meet all requirements for a valid contract, a
preference contract or pre-emptive right, need not. It is merely an offer to contract in the future in
which operation of the positive obligation is set off by a trigger event. Therefore, the pactum de
contrahendo between Sandhia and Minesh does not need to meet the same requirements as envisaged
in the contract of sale, and the positive obligation will arise only if a trigger event occurs.
If the object of the sale were movable property and not immovable property, the position stated
above would remain unchanged. This is because the general rule is that no formalities for the
conclusion of a contract exist, unless imposed by the parties themselves or by law. Whilst one
may argue that the Alienation of Land Act 68 of 1981 provides formalities, it was established in the
case of Mokone v Tassos Properties CC and Another that a right of pre-emption does not
constitute the alienation of land. Therefore, no, the position does not differ and the pactum de
contrahendo would still not need to meet the requirements for the conclusion of a valid contract.
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Theme 2: Mistake and the absence of consensus

Effect of a mistake on the validity of a contract
• Dual basis of contracts in modern SA law:
o Primary basis of Contract – Will Theory: requires actual, subjective agreement
between parties for contractual liability to arise
o Secondary Basis of Contract – Reliance Theory: when parties are not in agreement,
contractual liability can arise on the basis that one party led the other party to
reasonably believe that consensus had been reached
• Focus: contracts that lack a subjective, consensual basis, in which there is a material mistake
which precludes consensus ad idem between the parties
• Concept of “mistake” has a restricted meaning in Contract Law
o Refers to when one party acts under incorrect impression regarding some fact that
relates to and effects the contract
• Distinction made between:
o Mistake that vitiates [destroys] actual consent; and
o One that does not affect consensus but renders the contract voidable [rescindable]
Classification of mistake
Common, mutual and unilateral mistake
Common Mistake • Both parties are mistaken
• The consensus is based on a common,
false assumption/supposition
• This leads to the contract becoming void
Mutual Mistake • Both parties are mistaken about each
other’s intention
• Both parties are at cross-purposes
• There is dissensus
Unilateral Mistake • 1 party is mistaken, the other party is
aware of this mistake but remains silent
• There is dissensus
Irrelevant and relevant mistake

• Sometimes mistake does not negate consensus [irrelevant mistake] if it did not affect mistaken
parties decision to enter contract
• If mistaken party would have entered contract despite mistake that causes dissensus, the
mistake may be regarded as irrelevant
Material and Non-Material mistake

• According to the will theory, if agreement is the primary basis for contractual liability -
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o Question to ask ini determining if contract came into existence:

▪ Did parties reach consensus ad idem (meeting of the minds of the parties)?
▪ If yes and other requirements are met – a binding contract arises
▪ If no agreement – no contract exists on the basis of will theory and will be
void ab initio, unless the contract can stand on the secondary basis =
reliance theory
• Difference between material and non-material mistake is crucial to determine consensus
o Material mistake must relate to or exclude consensus
▪ Issue is dissensus /true “mistake” – Secondary basis of Reliance Theory must
be applied in order to determine if the contract came into existence or mistaken
party is to be excused of contractual liability – contract lacks legal basis
▪ Apply reliance theory
o Non-Material Mistake includes actual agreement by the parties because it does not
relate to element of consensus.
▪ Valid consensual contract still exists although it may be voidable
[rescindable] if consensus was obtained through misrepresentation,
duress, undue influence or commercial bribery – apply the Will Theory
with the contract as the legal basis
▪ Apply will theory
Material mistake
• Elements of consensus:
o Parties must:
▪ Seriously intend to contract
▪ Serious intention to Contract: if a party lacks intention to be legally bound
to a contract (animus contrahendi), there can be no consensus.
▪ Various reasons as to why party may lack intention to be bound. E.g. Party
can make declaration in jest [rixa] or merely intend a social agreement
[gentleman's agreement]
▪ Be of one mind regarding the material aspects of the contract – T’s & C’s
▪ Agreement on material terms of the contract: parties must be in
agreement about consequences intended to be created, the persons
between whom the obligations are to be created & content of obligations.
▪ Mistake regarding parties usually material.
▪ If 1 accept offer of another (but intended to accept offer of someone else)
the error will be material.
▪ If offeror makes offer to a specific person and the offer is accepted jointly
by the offeree and someone else – no consensus.
▪ 1 party does not understand the legal consequences of contractual
provision, this constitutes a material mistake.
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▪ Generally, mistakes as to contractual clauses permitting 1 party to

unilaterally vary the contract [performance changes/date for performance]
constitutes a material mistake
▪ Be aware that their minds have met
▪ Consciousness of agreement: Parties must not only have coinciding
declaration of intent but must be aware of each other intentions. Mistake
as to consensual intent to contract will be material.
▪ Offeree must know of the offer before he can accept.
▪ Offeror must know of acceptance first before there can be meeting of
minds
o If parties not in agreement about one or more of the above elements, this amounts
to a material mistake
Non-Material mistake
• Influences party’s decision to contract but not the element of consensus

• If parties are in agreement as to the material aspects of the contract, a consensual contract
comes into being.
• Nature of mistake: reason/motive for mistaken party to enter into an agreement [error in motive]
• NB → Just because parties have reached consensus & a contract has arisen does not mean
that the mistaken party is without legal recourse.
Traditional classification of material and non-material mistake

• Error in Corpore: material mistake concerning subject matter of contract /object of
performance.
o E.g. purchase of property where the parties have different properties in mind
• Error in Negotio: material mistake relating to the true nature of contract (juristic act)
o Very rare
o E.g. illiterate person signed agreement for surety
• Error in Persona: usually material mistake, regarding the identity of one of the parties to the
contract
• Error in Substantia/ Qualitate: non-material mistake, regarding an attribute/characteristic of
the subject matter of contract
o E.g. the purchase of land property demarcated incorrectly
• Error in motive: Non-material mistake, regarding the party’s reason for entering into the
contract
• Error iuris: Mistake as to the law relating to some aspect of transaction, only material if it
relates to the terms of the agreement rather than motive
• Error facti = error/mistake of fact
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Limitations to the Will Theory

• Unqualified acceptance of the will theory as the basis for contract has the inevitable result that,
if it is clear that there is dissensus, contractual liability cannot arise. Even if a contract seems
to have come into existence, either party would be able to escape liability by arguing a lack of
consensus. On a strict application of the will theory, every material mistake prevents the
existence of a contract
• Unwavering of the will theory would have extremely unfair results in certain circumstances
• Thus, the will theory is not applied without qualification
Reliance based correctiveness

• Over the years, our courts have alternated between SUBJECTIVE & OBJECTIVE bases of
contract.
o Subjective: using Will Theory, qualified by doctrine of estoppel & doctrine of quasi-
mutual assent
o Objective: using Declaration Theory as corrected by iustus error doctrine and
regarded as an indirect application of the Reliance theory
• Point of Intersection between → Courts have tried to reconcile both approaches.
o Objective & Subjective is contained within the Reliance Theory
o Case law is a mixture of principles
o Now the primary approach to contractual liability is subjective (Will Theory) but
qualified by Reliance Theory of liability
Subjective approach (Estoppel and Quasi-Mutual Assent)

• Smith v Hughes:
o Court looked at Freeman vs Cooke → Despite a party’s intention, he conducts himself
as a reasonable man would believe that he was assenting to the terms proposed by
the other party & the other party upon that belief enters into contract, that party would
be equally bound as if he intended to agree to such terms.
• Doctrine of Estoppel
o Doctrine of estoppel by representation introduced by English Law
o Where one party [estoppel raiser] has a reasonable belief in a misrepresentation
made by other party [estoppel denier] & relies thereon to his own detriment, the
estoppel raiser may hold the estoppel denier to the misrepresentation
▪ He can prevent the estoppel denier from relying on true state of affairs.
o Estoppel will only be upheld if the impression created is maintainable in law.
o Successful plea of estoppel has the effect that the misrepresented facts are upheld as
if true.
o There is support for estoppel qualifying the Will Theory in cases of dissensus
• Doctrine of Quasi-Mutual Assent
o Contrary to the doctrine of estoppel, the doctrine of quasi-mutual assent aka direct
reliance theory is a basis for an actual contract rather than a fictitious one
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o Argues for contractual liability to arise in the absence of consensus

▪ Requires a reasonable belief by one party [contract asserter] induced by the
other party [contract denier] that the latter agreed to the contract in question.
▪ Contractual liability is thus grounded in reliance of the appearance of the
agreement [the reasonable belief in existence of consensus induced by other
party]
o Pieters vs Solomon 1911:
▪ Plaintiffs offered to pay the amount owing by one Berger to the defendant in
the belief that it amounted to 345 pounds, when in fact it amounted to 490
pounds
▪ Defendant accepted the offer but was unaware of the plaintiffs’ mistake
▪ Plaintiff’s contended that they never intended to make themselves responsible
for more than 345 pounds
▪ Appellate Division upheld the defendant’s claim for the full amount
▪ De Villiers CJ: “… if their course of dealing with the defendant was such as
reasonably to lead him to believe that they intended to pay him the full amount
of his claim, the plaintiffs’ unexpressed intention to pay the lesser sum cannot
avail them. Having asked the defendant to send his statement, and having
received that statement without demur before confirming the agreement of
December, 1908, they must be held to have undertaken to pay the amount
appearing according to the statement to be due by Berger”
o Hodgson Bros vs South African Railways 1928:
▪ The plaintiffs offered, in writing, to sell a certain lorry to the defendant for 500
pounds
▪ The defendant wrote back and indicated that it would not be prepared to take
over the lorry, provided certain spare parts for it were included
▪ The plaintiffs accepted these terms and shortly afterwards, received a telegram
informing them that the defendant had omitted in his letter to state the price
that he was prepared to pay for the lorry, and that this price was 300 pounds
▪ The plaintiffs adopted the stance that the defendant was bound by contract to
purchase the lorry for 500 pounds, whilst the defendant repudiated any form of
contractual liability
▪ In finding for the plaintiffs, the court held: “it may have been unfortunate for the
defendant, but having induced the erroneous belief in the minds of plaintiffs,
they were bound thereby, whatever their actual intention may have been”
o Elements:
▪ Contract denier must have induced the reliance of the contract asserter that
the parties had reached consensus or that the contract denier had agreed to
the contractual terms.
▪ Contract asserter’s reliance must be reasonable
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▪ Ridon vs Van der Spuy & Partners 2002:

▪ Plaintiff was to receive a sum of money pursuant to the sale and transfer
of a wine farm
▪ The defendant was an incorporated firm of attorneys attending the transfer
of the farm to the new owner
▪ Plaintiff needed assurance that he would be paid the money upon transfer
of the farm
▪ One of the defendant’s directors provided the plaintiff with a written
undertaking that stated “On behalf of Mr M Schoeni we hereby undertake
to pay to yourself the amount of R358 000 upon registration of the above
property in the name of the purchaser”
▪ It later transpired that the particular director was instructed by his client not
to pay the amount to the plaintiff because of possible claims that had to be
set off against this amount
▪ Plaintiff was therefore only paid a portion of the money stated in the
undertaking, the defendant was personally liable in contract to pay the
outstanding amount to the plaintiff
▪ Defendant’s defence was that it had merely acted on the instructions of its
client and that no contract had arisen between it and the plaintiff
▪ Expressly applying the reliance theory, the court upheld the plaintiffs claim
and found that by giving the undertaking, the defendant impliedly
represented to the plaintiff that its true subjective intention was to assume
personal liability to pay the plaintiff the sum upon registration of transfer,
and the plaintiff clearly relied upon this representation and arranged his
affairs accordingly. The plaintiff’s evidence showed that in doing so, he
was acting reasonably and has established on a balance of probabilities
that the defendant was, in its personal capacity, contractually obliged to
pay the amount to the plaintiff upon registration of transfer. By failing to do
so, the defendant breached its contract and the plaintiff is accordingly
entitled to the relief sought
o Onus of proof:
▪ Party who alleges a contract on the basis of quasi-mutual assent bears the
onus of proving, on a balance of probabilities, the facts that warrant such a
conclusion
▪ Despite dissensus, the facts may indicate the existence of apparent agreement
and of reasonable reliance on consensus
▪ Consciousness of agreement:
▪ Parties must not only have coinciding declaration of intent but must be aware
of each other intentions. Mistake as to consensual intent to contract will be
material.
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▪ Offeree must know of the offer before he can accept. Offeror must know of
acceptance first before there can be meeting of minds
▪ Caveat subscriptor: someone who signs a document containing contractual
terms is held bound because of the impression of agreement created by the
signature → doctrine of quasi-mutual assent is seen as the basis of this rule
and the effect is to place an onus of rebuttal on the contract denier to show
why a prima facie inference of reasonable belief should not be regarded as
conclusive
Objective approach qualified by the Iustus Error Doctrine

• Declaration theory / wholly objective approach established contractual liability purely on
concurring, objective declaration of will.
• Inner will/ actual intention of parties is irrelevant
• When finding subjective agreement, a court will have to look at the external manifestations of
that agreement
• The declaration theory may be distinguished on that basis that it wholly disregards the actual
intention in the creation of contractual obligations
o Very controversial – need to qualify the use of the declaration theory.
Declaration theory in case law

• First authority for the Declaration theory: SA Railways & Harbours vs National Bank of South
Africa : “the law does not concern itself with the working of the minds of the parties to a contract,
but with external manifestations of their minds…if…the minds of the parties do not meet, yet, if
by their acts their minds seem to have met, the law will….look to their acts & assume that their
minds did meet….”
o These words should be regarded as indicative of the partial need to look for actual
intention in the declarations of the parties
• Second authority: Many cases indicate that application of the Declaration Theory works in
tandem with the Iustus Error doctrine.
o Do not reflect a a strict application of the declaration theory – generally an objective
approach, because absolute adherence to the declaration theory would mean that a
person could never rely on a subjective mistake to avoid liability
o In terms of the iustus error doctrine, however, an objective contract may be rendered
void for material and reasonable mistake
o National and Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958:
▪ Respondent invited tenders for the erection of a steel shed
▪ Appellant submitted its tender, which the respondent’s manager accepted on
its behalf by way of a letter
▪ Appellant set about making arrangements for the erection of the shed, and
thereafter, was informed by the respondent that the letter of acceptance had
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been inadvertently addressed to the appellant as a result of an administrative

error, and that the respondent had in fact accepted the tender of another firm
▪ Appellant refused to accept that such an error exonerated the respondent and
claimed that a contract had arisen between the two parties, and that the
respondent had breached it by denying its existence
▪ In an action for damages by the appellant, the respondent disputed inter alia
that a contract had arisen and that the manager had authority to enter into the
contract on its behalf
▪ Court a quo decided in favour of the respondent
▪ Appellate Division upheld the appellant’s appeal and stated “if the respondent
had been a natural person who had accepted a tender according to its terms,
there is no doubt that a contract would have been made when the acceptance
was communicated to the tenderer, as by posting it. It would not be possible
for such a natural person, if he repudiated, to escape liability by proving that
he had posted the wrong letter or the like. That follows from the generally
objective approach to the creation of contracts which our law follows”
▪ Court remarked that the respondent’s plea made no mention of mistake and
that there was no basis upon which the mistake could be regarded as
reasonable. It found furthermore that the contract was one which the
respondent could lawfully enter into and its manager was the proper person to
enter into contracts on its behalf. Therefore, the manager had bound the
respondent when he sent the letter of acceptance, despite the fact that the
board of the respondent had not passed a resolution authorising him to send
the letter
Iustus Error Doctrine

• Iustus error approach to the problem of mistake in contract has been used since the 19th
century – it is not in itself a theory of contractual liability
• Functions as a corrective measure in the case of dissensus
o Provides that a party will not be held bound if apparently mistakenly gave his consent
& the mistake was material and reasonable.
• Once the contract asserter shows agreement [objectively shown consent], the contract denier
bears the onus of proving that his mistake was both material & reasonable in order to be
absolved from liability.
o If contract denier succeeds – contract is void ab initio
o If he fails – he will be bound on the terms initially proved by the contract asserter
• Factors that make a mistake material & reasonable:
o An operative mistake will be excusable according to objective circumstances
o However, the Iustus Error doctrine has not been comprehensively formulated and we
rely on case law as a guideline as to what may be construed as material and
reasonable.
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• George v Fairmead (Pty) Ltd 1958: “when can an error be said to be justus for the purpose of
entitling a man to repudiate his apparent assent to a contractual term? As I read the decisions,
our Courts, in applying the test, have taken into account the fact that there is another party
involved and have considered his position. They have, in effect, said: has the first party- the
one who is trying to resile- been to blame in the sense that by his conduct he has led the other
party, as a reasonable man, to believe that he was binding himself?... If his mistake is due to
misrepresentation, whether innocent or fraudulent, by the other party, then of course, it is the
second party who is to lame, and the first party is not bound”
• National and Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958: “our law
allows a party to set up his own mistake in certain circumstances in order to escape liability
under a contract into which he has entered. But where the other party has not made any
misrepresentation and has not appreciated at the time of acceptance that his offer was being
accepted under a misrepresentation, the scope for a defence of unilateral mistake is very
narrow, if it exists at all. At least the mistake would have to be reasonable (justus) and it would
have to be pleaded.
• Thus:
1. A material mistake will usually be reasonable if caused by a misrepresentation on the part
of the contract asserter
o For a representation to render a mistake reasonable, it must be unacceptable in
the eyes of the law
o Sometime the representation can be seen as being wrongful or contra bonos mores
o Representation could be positive or negative.
2. If the contract denier is not to blame for his mistake – he behaved as a reasonable person
would have in the circumstances : the mistake may be excusable.
o Fault: plays a part in the iustus error approach – very controversial. If there was fault
on the part of the contract denier – may be excused on his part but will be different if
contract denier can prove wrongful misrepresentation.
3. If the contract denier did not cause a reasonable belief in the contract asserter that the
contract denier has assented to the agreement – an iustus error
Reconciliation of Subjective and Objective

• Both approaches used in case law - controversial as creates contentious issues
• Approaches appear to be opposites
o So which approach do we use in SA Law to establish contractual liability?
• Many authors have disfavoured the declaration theory and the iustus error doctrine.
• If there is no reconciliation between doctrines of quasi-mutual assent & iustus error, then the
iustus error doctrine must be defined under quasi-mutual asset i.e. iustus error approach would
amount to an indirect application of reliance theory
• Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992:
o The parties entered into a 20 year lease agreement
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o However, when he appellant’s attorney drafted an addendum to the lease, he

mistakenly shortened the lease period for 20 to 15 years
o The respondent, as owner of the property, stood to gain from a shortened lease period
and signed the addendum without a murmur, later claiming that he believed that the
appellant had intended to shorten the lease period
o The appellant had no such intention and claimed inter alia that the addendum was
void in light of the mistake
o Court a quo found in favor of the respondent, holding that the appellant’s mistake had
not been iustus because it was due to its own fault
o On appeal, Harms JA categorised the appellant’s mistake as unilateral on the basis
that only the appellant mistakenly believed that its declared intention conformed to its
actual intention. He then proceeded to review the law pertaining to mistake in contract.
▪ Confirmed that as a general rule, the law concerns itself with the external
manifestation and not the workings of the minds of the parties to a contract
▪ However, in cases of alleged dissensus, the law has regard to other
considerations, and resort must be had to the reliance theory in order to
determine whether the contract came into being
▪ In effect, was saying that the iustus error doctrine was an adaption of the
reliance theory. He then proceeded to formulate a test for the reliance theory:
▪ “in my view, therefore, the decisive question in a case like the present is
this: did the party whose actual intention did not conform to the common
intention expressed, lead the other party, as a reasonable man, to believe
that his declared intention represented his actual intention? … To answer
this, a threefold enquiry is usually necessary, namely, firstly, was there a
misrepresentation as to one party’s intention, and thirdly, was the other
party misled thereby? The last question postulates two possibilities: was
he actually misled and would a reasonable man have been misled?”
▪ “in the present case the appellant represented to the respondent that its
intention was to reduce the period of the lease. One has then to determine
whether the misrepresentation had any effect, ie whether the respondent
was misled thereby. If he realised (or should have realised as a reasonable
man) that there was a real possibility of mistake in the offer, he would have
had a duty to speak and to enquire whether the expressed offer was the
intended offer. Only thereafter could he accept. The snapping up of a
bargain in the knowledge that such possibility would not be bona fide.
Whether there is a duty to speak will obviously depend on the facts of each
case.”
▪ Found that the respondent was aware of the possibility of a mistake on the part
of the appellant, and had a duty to speak and enquire whether the latter did
actually intend to shorten the period of the lease
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▪ Respondent failed to discharge this duty with the result that there was no
consent, actual or imputed, and the addendum was declared void to the extent
that it purported to reduce the lease from 20 to 15 years
• The test in the above mentioned case thus enquires, whether in instances of dissensus, the
contract denier misled the contract enforcer into a reasonable belief that the contract denier
had actually assented to the contractual terms in question
o If the contract enforcer realised or should, as a reasonable person, have realised that
there was a real possibility of mistake on the part of the contract denier, the contract
enforcer has a duty to speak and enquire whether the contract denier’s expressed
intention conformed to his actual intention
o Failure to do so results in an absence of reasonable belief in consensus on the part of
the contract enforcer, and, conversely, indicated a reasonable mistake on the part of
the contract denier
Direct or indirect reliance?

• The reliance theory may be preferred in its direct form in many instances, although the iustus
error doctrine may work equally as well
• There is, however, at least one instance where both direct and indirect reliance may be applied,
but the direct reliance theory is perhaps the preferable option, and that is where the contract
denier’s mistake is caused by the misrepresentation of an independent 3rd party
Contractual impact of common mistake

• Common mistake different from mutual/unilateral mistake = Dissensus as a result of consensus
being based on a false assumption or supposition, where parties are both mistaken → Contract
becomes void
• Common error is not a true mistake – the ordinary principles of contract do not apply.
• Cases where both parties make mistake BUT it does not relate to the intentions of the parties
as this would be the case of a mutual mistake
o Parties are in complete agreement (ad idem) and know each other’s intentions, but
both mistaken about some other underlying fact which they have assumed about
Rectification
• Parties reduce contract to writing – possible that the written instrument unintentionally fails to
reflect their common intention
• If the parties are in agreement, usually the parties will rectify the document themselves or even
simply perform in accordance with their common intention
• If parties cannot agree on amendments & one party insists on performance as in the written
contract, the other party may apply to court for rectification or correction of the contract so it
reflects the parties actual intention
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o What is rectified is not the contract itself as juristic act, but is rather merely the document
in question because it does not reflect what the parties intended to be the content of
their juristic act
• Rectification is generally regarded as a consequence of the primarily subjective approach of
the SA law to contractual liability
o Therefore, a party to an incorrectly recorded agreement is permitted to rely on the
contractual terms actually agreed upon and to have the document corrected to conform
to the true intention of the parties
• Rectification may also be permitted where the disparity between a preceding agreement and a
subsequent written document is caused, not by a bona fide mutual mistake, but by the dolus
(fraud) of one of the parties
• Courts require that a party claiming rectification must establish that the document does not
reflect the common intention of the parties, as well as what the true intention of the parties was
and how the document is to be amended to reflect that intention
o Determining the true intention of parties is a question of fact
Theme 3: Improperly obtained consensus

Introduction
• Despite the fact that a contract may be entered into because of Misrepresentation, Duress or
Undue Influence, the agreement is still real despite being entered into by such means.
o There is no lack of consensus since parties know with whom and what terms they are
contracting to.
o Agreement is valid [so long as all other requirements for contract are met]
• However, since consensus is vitiated/flawed through being obtained by improper means, these
contracts are voidable at the instance of the innocent party, who can choose to set contract
aside
o Accordingly, the other party has to restore whatever s/he has benefited from the
contract.
Remedies for contracts entered into by misrepresentation, undue influence and duress
(improperly obtained consensus)
Restitutio in integrum
• Rescission plus restitution = Restitutio in integrum
• Available as both an action and a defence
• No need to approach court
o If the rescission is disputed –then approach court to cancel
• Aims to restore the parties to the position they were in before conclusion of the contract
o General Rule: innocents party’s right to use Restitutio in Integrum is dependent on his
willingness & ability to return what was received from the contract – courts can relax
this principle under consideration of equity and justice
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• If ground for relief is misrepresentation, duress, undue influence or bribery – innocent party can
rescind or uphold contract. The decision is final & irreversible without the others consent.
o If innocent party upholds contract –he is bound by its terms.
o If innocent party rescinds – he must notify the other party and the contract then ends.
• If other party cannot make restitution, the innocent party can claim the value of performance
Delictual Damages
• Party who induced contract by improper means will constitute a delict [civil wrong]
• Innocent party may recover damages in cases of financial loss despite whether he decides to
rescind or uphold contract.
• Damages are delictual in nature – governed by principles of Actio legis Aquilliae
• Damages are calculated according to innocent party’s negative interest
o Aims to place him in same position if delict had not been committed.
• Award of damages supplements Restitutio in Integrum where contract is rescinded
• If innocent party chooses not to rescind, damages include his losses incurred on the transaction
Misrepresentation
• Form of misstatement
o A misstatement does not accord with true facts.
o Misrepresentation → narrower technical meaning: Usually an express, verbal
statement but can be implied by conduct
▪ silence may constitute a misrepresentation
• Distinction between misrepresentation and other pre-contractual misstatements which are
made in terms of negotiating a contract → the remedies available to the parties differ according
to the type of misstatement
o Warranties/contractual terms
▪ When a statement is made in pre-contractual negotiations or is included in
standard contract, the question to be asked is: Is it a representation or a
warranty?
▪ i.e. Is the “term of the contract” something to which a party should be
bound?
▪ Test to distinguish Warranty from Representation rests on INTENTION – did
they intend the statement to form part of the contract/ was there ntention that
there is contractual liability in respect of it?
▪ If the maker of the representation assumes no responsibility for the
statement –the law can impose such a responsibility
▪ Insistence on animus contrahendi [intention] for warranty is a general
principle but is elusive in practical application
▪ In determining the intention of parties, the court is guided by objective
criteria: importance of truth of the statement, when was the statement
made, was it made in response to a question? [tests are not conclusive]
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▪ A warranty is a term and its breach gives rise to usual remedies in contract
i.e. cancellation / damages according to positive interest
o Opinion, statements as to future and statements of law
▪ Representation is a statement of past / present / expression of opinion /
forecast / statement of intention
▪ If incorrect or unfulfilled, it is not a misrepresentation
▪ “the state of a man’s mind is as much a fact as the state of his digestion” –
speaker does not have a belief or opinion made or lacks the will to give effect
when he makes it. He misrepresents his own state of mind and may be held
liable.
▪ EXCEPTIONAL CIRCUMSTANCES: bona fide expression of opinion implies
representation that speaker has reasonable ground for holding such an opinion
▪ STATEMENT OF LAW: usually considered statement of opinion – not
actionable
o Puffs/ simplex commendatio
▪ General laudation / puffery is not a misrepresentation if confined to
‘indiscriminate puffing & pushing and does not condescend to particulars’
▪ If the puffery/exaggeration goes beyond and is intermingled with facts
punctuated with details – may entail liability.
▪ Very difficult to establish – must be considered objectively by court.
▪ Puffs are a type of opinion
o Dicta et promissa
▪ Roman-Dutch Law: “a material statement made by the seller to the buyer
during negotiations going beyond mere praise and commendation”
▪ If statement is unfounded – purchaser has the Aedilition remedies:
1. CANCEL with ACTIO REDHIBITORIA [RETURN OF THING]
2. ACTIO QUANTI MINORIS [REDUCTION OF PURCHASE PRICE]
▪ Excludes puffing and is limited to contract of sale
• Thus, for a party misled by the misrepresentation, the remedies are:
a. Set aside the contract and claim restitution
b. Raise misrepresentation as a defence
c. Claim damages for losses caused by misrepresentation
Elements of recission and restitution
1. MISREPRESENTATION BY OTHER PARTY:

o Other party or by Someone acting for other party – agent/representative
o If made by 3rd party – no effect on contract unless it induces a material mistake – void
2. INDUCEMENT:
o Induced- causal connection between the misrepresentation & conclusion of contract
o No relief if knew the representation was false
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o Representation has 2 meanings: must show acted and understood false meaning
o Test for inducement [subjective] → did it induce entering the contract? NOT would it
have induced?
o 2 types of fraud:
▪ Dolus dans in contactui: if but for the fraud, the contract would not have been
concluded
▪ Dolus incidens in contractum: even if for the fraud there still would have been
a contract but on different terms
3. INTENTION TO INDUCE
o Misrepresentation made with intention of inducing to enter contract
o Intention to act upon misrepresentation different from intention to deceive [fraud]
o Where misrepresentation made without intention to induce – reliance upon
representation will be unreasonable.
4. MATERIALITY
o Misrepresentation must be material to rescind – difficult to determine
o Materiality has many meanings
o Most common meaning: misrepresentation should be of such a nature it would have
the natural & probable effect of inducing a reasonable person to enter into the contract.
o Reliance on representation should be reasonable.
Types of misrepresentation
Fraudulent Misrepresentation
• A misrepresentation made knowingly and recklessly by the representor, without honest belief
in its truth, which induced the representee to act and suffer damages as a result
o Test for honest belief is subjective → negligence or unreasonableness cannot
constitute fraud [can persuade the court that there was a want for honesty]
• Deliberate deception that causes another financial harm and therefore constitutes a delict and
entitles the innocent party to claim damages
o Made representation without honest belief in it and intended for it to be acted upon,
thus the intention to cause damage not of consequence and the damages therefore
arise out of acting on the misrepresentation
• Motive is irrelevant
• Implied representation: the representor is unaware of his reputation and thus cannot have
intended for it to be acted upon
Negligent Misrepresentation
• Misrepresentation made honestly but carelessly
• At first there was doubt as to whether delictual damages may be sought in respect of negligent
misrepresentation inducing a contract to be concluded
o Court was reluctant to grant such damages for economic loss
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o However, after Administrator Natal v Trust Bank van Afrika, actionability for
negligent misrepresentation causing economic loss was recognised
• A contracting party may safeguard himself against loss by requiring the representor to
guarantee the truth of his representations
Innocent Misrepresentation
• Misrepresentation made by fraud or negligence
• If the innocent misrepresentation does not relate to a term of the contract and is made without
intention or negligence, there is no breach and accordingly no damages can be claimed
Omission
• Failure to disclose a material fact when there is a legal duty to do so constitutes
misrepresentation by silence (commissio per omissionem)
• A party induced into a contract by omission is entitled to the same remedies as victims of
misrepresentation → recission/restitution
o Must prove that the failure to speak was unlawful
• general rule: where conduct takes the form of an omission, such conduct is prima facie lawful
– the contracting party is under no legal duty to disclose information even if he is aware that
the disclosure would influence the others decision to enter the contract
• Exceptions:
o Contracts of insurance, agency, partnership or engagement should be made bona fide
o Fiduciary relationships between parties eg: attorney/client, guardian/ward,
doctor/patient
o Where statute imposes a duty to disclose eg: the Companies Act specifies matters
must be disclosed in a prospectus inviting public to subscribe for shares
o Where seller knows of later defect in the thing he is selling he can be held liable, even
if he didn’t know of the defect, unless sold voetstoots
o Where an applicant for credit is an unrehabilitated insolvent, his status must be
disclosed
o Prior conduct or statement renders silence misleading
• A duty to disclose is not derived from an implied term of the contract, it is simply imposed
• Question: is there a common denominator/principle underlying the exceptional cases that could
serve as a general test for a duty to disclose in other cases too?
o Parties have to behave in accordance with good faith – needs to be more concrete
o Duty of disclosure exists when there is an involuntary reliance of 1 party on the
disclosure of facts necessarily lying within the knowledge of the other, the formers right
to have such information communicated to him would be recognised by honest men in
the circumstances.
o Party may remain silent where matters are open to common observation, obtainable
through ordinary diligence or accessible to both parties – each could exercise their own
judgement
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Duress
• Duress/ metus: improper pressure through intimidation
• Involves coercion of a person’s will – one who gives consent under duress does not give such
consent through the free exercise of his own will, but through fear inspired by an illegitimate
threat
• In extreme cases, the fear is so great that it can exclude consensus altogether
• Threat has to be unlawful and the effective cause of the contract – if not for the threat, the
pressurised party would not have contracted at all or on the said terms
• Requirements:
1. Actual violence/reasonable fear
o Threat should be sufficiently grave to affect the mind of a reasonable person
2. Fear must be caused by threat of some considerable evil to the party or his immediate
family
o Threat must be directed at the life, body or property of the victim or his immediate family
3. Threat must be of an imminent/ inevitable evil
o Although it is recognised that a party should seek legal protection rather than yield to
the threat, this is often not the case. Relief should still be granted even if the threat was
neither imminent or inevitable
4. Threat must be contra bonos mores
o Threat must be unlawful and made for an illegitimate purpose
5. Moral pressure exerted must have caused damage
o Person alleging duress must show he has become subject to obligations that he
otherwise would not have incurred
o Duress from an outsider/3rd party allows a claim for damages against that third party
• Nature of the coercion:
o Vis Absoluta: coercion in the form of a threat operates in the mind of the victim forcing
him to choose between 2 evils – either contracting or suffering harm
o The reasonableness of the fear:
▪ Threat should be sufficiently grave to affect mind of reasonable person
▪ Age, sex, other personal attributes should be taken into account
o The object of the threat:
▪ Threat must be directed at life, body or property of victim or his family
o Imminence of the harm:
▪ In Roman Law, it was believed that the party threatened should seek legal
protection rather than yield to the threat
▪ Relief should be granted even if threat was neither imminent or inevitable
o Unlawfulness of the threat:
▪ Threat must be contra bonos mores
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▪ If one enters into a contract based on a lawful threat, there can be no complaint
since duress entails getting the victims consent through unlawful, improper
means
▪ The threat is unlawful if the threatened conduct is unlawful and made for an
illegitimate purpose
o Damage:
▪ Person alleging duress must show he has become subject to obligations he
otherwise would not have incurred ie: duress must have induced the contract
o Duress by a 3rd party:
▪ Allows for an action for damages against that 3rd party/outsider
Undue Influence
• Undue Influence: a form of improper pressure brought upon a person to induce him to enter
into a contract
o Pressure more subtle than in cases of duress
• Requirements:
o Other party obtained influence over the victim
o The influence weakened the victim’s power of resistance and rendered his will
compliant
o Other party maliciously used this influence to get the victim to enter into a contract
prejudicial to him and that he would not have chosen to enter otherwise
Commercial Bribery
• Commercial Bribery: The wrongful and immoral means used to secure an agreement
• Distinct ground for rescinding a contract
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LEARNING UNIT 3: REQUIREMENTS OF A VALID CONTRACT

Overview
All persons, natural and juristic, have legal capacity, which means that they are bearers of rights and
duties. Contractual capacity refers to the competence to conclude a contract (juristic act) and be
responsible for the rights and obligations that flow from this act. As a general rule, no formalities are
required for the formation of a valid contract. The two exceptions to this rule are where a statute
prescribes formalities for specific types of contracts and where the contracting parties have imposed
certain formalities themselves. The law regards illegal contracts as either void and unenforceable or as
valid but unenforceable. An enquiry into legality always involves the balancing of competing contractual
values, such as the freedom to contract (pacta sunt servanda) and the many values and interests found
in the basket that we call public policy. Public policy does not have one clear definition. It is an open-
ended concept comprising of, amongst others: morals, constitutional values, constitutional rights,
commercial expediency, bargaining power, unconscionability, good faith, social expedience and other
such interests. Our courts do not apply the Constitution directly to the contract but rather indirectly
through public policy which incorporates these rights and values and as such, there is an indirect
horizontal application of the Constitution on Law of Contract. Another important general rule is that a
contract cannot be formed if the obligation that it is founded upon is not possible. In this learning unit,
we will examine the remaining requirements for a valid contract including contractual capacity,
formalities, legality, and possibility and certainty of performance.
Theme 1: Contractual Capacity

Legal capacity v Contractual capacity
• Legal capacity
o All persons, natural or juristic, have a passive legal capacity conferred to them as a
result of the legal personality placed on them by way of being legal subjects and thus
the bearers of right and duties
o However, not all persons have the required capacity to perform juristic acts
▪ Extent of capacity dependent on legal status, age and mental competence
▪ Full capacity to perform juristic acts only conferred on those who are sane, old
enough and who have the ability to appreciate the nature and consequences of
their actions
• Contractual capacity
o The competence to create rights and duties by concluding a contract with another
person or persons
o Contracting is bilateral/multilateral Juristic Act, is a wider capacity to perform juristic
acts.
o Extent to which a person has the capacity to contract is dependent on his or her ability
to form and express a legally relevant will, which in turn depends on the ability to
appreciate the nature and effect of his or her act
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Different categories of capacity for natural persons

Persons without contractual capacity
• Persons whose mental faculties are so underdeveloped or impaired that they cannot appreciate
the nature and consequences of their acts are entirely without contractual capacity
• Infants/persons under 7 years of age → unable to perform any juristic acts and therefore cannot
independently conclude contracts
o Can be the bearer of rights or duties if the guardian acts on his or her behalf
o Guardian may only do so for the purposes of administering the infant’s estate or his or
her maintenance or support
• Apart from infants, every person is generally presumed to have full mental capacity. Therefore:
o If a person alleges another lacked contractual capacity at the time of the conclusion of
the contract, that person bears the onus of proving that at that time of conclusion the
person was incapable of appreciating the nature and effect of his or her actions
o Where a person has been referred to treatment as a mental health care used by order
of the court, the order is prima facie proof of the lack of contractual capacity. Burden of
proof shifts to the person alleging capacity to show that at the time of conclusion the
mental health care user did in fact have this capacity
▪ Consumer Protection Act 68 of 2008: any agreement with a person who has
been declared mentally unfit by a competent court is void, where the supplier
knew or could have reasonably determined this fact
o Intoxication may result in a temporary loss of contractual capacity, but only if the
person was under the influence of alcohol or drugs to such a degree that he or she
either did not know he or she was entering into the transaction at all, or had no idea of
its provisions
▪ The mere fact that his or her judgment was impaired is insufficient
▪ If this test is satisfied, the contract is void ab initio and cannot be ratified
▪ Burden of proof lies on person alleging incapacity
Persons with limited contractual capacity

• General rule: persons with limited contractual capacity can only conclude contracts with the
assistance or consent of another person
• Minors (person between the ages of 7 and 18 years)
o Insufficient capacity to incur binding obligations under a contract – to do so, minor
requires the assistance or consent of his or her guardian
▪ Consent given before or at time of conclusion, alternatively after conclusion
through ratification – ratification render the contract valid retroactively
o If the guardian refuses to consent, the court as upper guardian of all minors may upon
application consent on behalf of the guardian
o If the guardian has consented, the court also has the power as upper guardian to set
aside that consent
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o Emancipated minor: a minor entitled to act independently because their parent or

guardian has given an express or tacit general consent to act as such without obtaining
additional consent or assistance
▪ Minor will then have full contractual capacity only for these specific juristic
acts, provided that he or she has the actual ability to act independently
▪ The consent given by the parent or guardian can be revoked at any time, in
which case the status of the minor reverts to one of limited contractual capacity
▪ If any transaction is to the minor’s detriment, he will still be entitled to restitutio
in integrum
▪ In certain cases, emancipation is forbidden by the law Eg: statute expressly
requires consent of guardian, parent, Master of the HC or court
o A minor may, without the assistance or consent of his or her guardian, conclude a
contract under which he or she obtains only rights and no duties
o Statutory exceptions to the general rule requiring guardian’s assistance
▪ Eg: minor older than 16years of age may deposit money into an account at a
bank, provided that the constitution of the bank allows it
o Instead of lending assistance or consent, guardian may personally enter into contracts
for the minor
▪ Rights and duties vest in the minor
▪ Minor’s consent or cooperation generally not required, and the minor is bound
even if he or she does not know about these contracts
▪ However, certain contracts may never be concluded for a minor without his or
her consent or cooperation Eg engagement contract
o In certain transactions, not even the consent of the guardian will suffice to bind a minor,
because in addition, the consent of an official person or body is required
▪ Where a minor’s immovable property alienated or encumbered, consent of
either the HC or Master of the HC required depending on the value of the
property
o Although the minor is bound by the contract where it has been concluded by or with
the assistance of his or her guardian, minor may nevertheless escape liability if it should
later be shown that the contract was prejudicial to him or her at the time of conclusion
▪ Court may then, upon application, set aside the contract or order restitutio in
integrum
▪ Claim for restitutio in integrum may be denied where the minor fraudulently
pretended to be a major at the time of conclusion of the contract, where he
ratified the act either after attaining majority or where the action has
prescribed – period of prescription usually 3 years for contractual claim
unless otherwise specified by statute, but is subject to delay where the
creditor is a minor
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▪ S13 Prescription Act: prescription will continue to run during the

existence of an impediment, but the period of prescription shall not be
completed until one year has passed from the date on which the
impediment ceased to exist → minors claim for restitutio in integrum will
therefore prescribe at the earliest one year after attaining the age of
majority
▪ Application may be brought before termination of minority by the guardian or
with his assistance, or afterwards by the minor himself
▪ Upon attaining majority, the minor may elect to repudiate or ratify any contract
concluded during minority without the necessary assistant or consent of
guardian
▪ Where the minor has acted without the necessary consent or assistance, the
contract cannot be enforced against the minor, but is not void because it can
be enforced against the other party, provided the minor is willing to fulfil his
side of the bargain
▪ If the guardian assists the minor in claiming performance from the other party,
the guardian is seen to have ratified the contract. In the absence of such
ratification, the minor has to return any performance he or she has already
received from the other contracting party – and where the performance has
been destroyed, alienated or depreciated in value, the other party may have a
claim against the minor on the grounds of unjustified enrichment, as well as
possibly a claim in terms of damages if the minor fraudulently misled the party
to believe he had the necessary capacity to contract
▪ Consumer Protection Act: an agreement to enter into a transaction with a
consumer who is, or was at the time, an unemancipated minor is voidable at
election of the consumer, unless the agreement was:
a. Made with the consent of an adult responsible for the minor; or
b. Has been ratified by an adult, or by the minor himself upon attaining
majority
• Married persons
o Spouses married out of community of property
▪ Have separate estates and their contractual capacity is unaffected by
marriage.
▪ The case where parties execute an ANC verbally or in writing prior to marriage,
which is binding on 3rd parties
▪ if in writing, must be notarised and registered with Deeds Registries within
3 months form the date of marriage.
o Spouses married in community of property
▪ Have a joint estate and their capacity to bind that estate is limited by law.
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▪ Are co-owners in joint estate in equal undivided shares, they administer the
joint estate concurrently.
▪ Powers can be exercised independently without consent of the other.
▪ Certain important contracts, however, require consent of both spouses
▪ The Matrimonial Property Act prescribes instances where written consent
[sometimes attested to by 2 witnesses] is necessary.
▪ If one spouse contracts without consent of the other, and the other party was
unaware & could not reasonably be aware – the joint estate will be held liable
▪ Where a spouse married in community of property has a separate estate by
way of, for example, property inherited under a will stipulating that the property
cannot fall within the joint estate, the spouse has full, independent contractual
capacity in respect of that separate estate
• Insolvents
o Mere fact one is insolvent, in that he cannot pay his debts or his liabilities exceed his
assets, does not affect the contractual capacity of that person
o Only once court has granted an order for sequestration that the estate becomes limited
o After Sequestration, a trustee is appointed to insolvent estate to wind up the estate for
benefit of creditors
o During Sequestration an insolvent can contract – so as long as they do not dispose of
any assets of the insolvent estate and that the obtain the written consent of the trustee.
• Prodigals
o A person with normal mental capacity who, through a defect in character/will,
squanders his assets irresponsibly
o Can be declared a prodigal by order of court, thereafter his contractual capacity is that
of a minor
o Prodigals estate administered by curator, thus their assistance & consent is needed to
contract
o Contracts concluded without the curators assistance / consent are voidable rather than
void – can be ratified by curator
Persons with full contractual capacity

• General Rule: all natural persons falling outside the above categories have full contractual
capacity.
o Statutory provisions may limit their capacity
Contractual capacity of a juristic person

• Juristic person: an artificial entity, with no physical existence, upon which the law confers legal
personality – the capacity to acquire rights and incur obligations
o Can only act through its organs or representatives, who are always natural persons
with the necessary authority to represent the juristic person → can bind the juristic
person by performing juristic acts on its behalf
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• Examples: companies, close corporations, bodies incorporated by statue, certain voluntary

associations
• Cannot have the full legal capacity or powers of a natural person
• Rights and powers, including its capacity to conclude contracts, are determined and limited by
the terms of its constitutive documents
o Anything done outside the scope of its powers is ultra vires and devoid of legal effect
▪ Exception: companies in terms of S36 of the previous Companies Act → no
act of a company was void by reason only of the fact that the company was
without capacity or power to perform the act
The State
• State and its organs have the capacity to enter into contracts
• May be held liable to perform its obligations under the State Liability Act, provided the contract
was entered into in the ordinary and necessary course of government administration and was
directly or indirectly authorised by the responsible minister
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Theme 2: Formalities
Introduction
• General Rule: no formalities required for the formation of a contract
• Exceptions:
o Formalities prescribed by law → in certain types of contracts, the law requires the
parties to express their intention in a prescribed, formal way ie: writing, notoriety,
registration – in order for contract to be valid or in order to be enforceable against 3 rd
parties
▪ Failure to adhere to prescribed formalities will render the contract void
o Formalities prescribed by the parties → parties may agree that the contract will be
binding on them only when certain formalities have been observed ie: agreement
reduced to writing and signed by both parties, variation clauses, cancellation clauses
etc
• All important contracts should be in writing to serve as proof of its existence and its terms
o The party who wishes to enforce a contract bears the onus of proving
o Without a written record, it may be very difficult to establish the contract’s existence
Prescribed formalities required by law for validity

Alienation of land
• Section 2(1) Alienation of Land Act: “no alienation of land after commencement of this
section shall … be of any force or effect unless it is contained in a deed of alienation signed by
the parties thereto or by their agents acting on their written authority”
• Therefore requires:
a. Written deed of alienation
b. Signed by both parties OR their agents if authorised in writing
• Purpose: to promote legal certainty regarding authenticity of contracts
• Section does not apply to the sale of land by auction
Suretyship
• What is surety? – if the principal debtor fails to perform the principal obligation, surety will
perform it
• Section 6 General Law Amendment Act: no surety entered into after 22 June 1956 is valid
unless signed by surety
a. Signed by surety
• Creditor need not sign
• Purpose: brings the terms of the contract to the awareness of surety
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Donation
• Section 5 General Law Amendment Act: no contract of donation entered into after 22 June
1956 will be valid unless the written document is signed by the donor or agent under written
authority granted in the presence of 2 witnesses
a. Signed by donor OR agent if authorised in writing
b. Authority granted in the presence of 2 witnesses
• Deed of donation does not have to be witnesses
• Donor has to accept the offer but need not sign the contract
• Executory Donation: a donation not yet carried out – not completed by delivery of promised
benefit
Prescribed formalities required by law for enforcement against 3rd parties

Anti-Nuptial Contract (ANC)
• In order to be valid between parties, the ANC must be notarised and registered within 3 months
before marriage
• Notarial execution: conclusion of a contract in writing before a notary
o Notary signs, seals it and places a copy in his protocol
Long Lease of land

• Section 1 Formalities in respect of Leases of Land Act: an oral lease of land is invalid
• Long term lease of land will only effect against a creditor
• Binds 3rd parties for a period of longer than 10 years after having been entered into if registered
against a title deed of leased land
Formalities in electronic contracts

• Section 12 Electronic Communications and Transactions Act: requires that a document or
information be in writing if it is in the form of a data message and is accessible
• Does not apply to alienation of land and long-term leases of land over 20 years
• Applies to suretyship and executory donations
• Section 13(2) Electronic Communications and Transactions Act: an electronic signature
can serve as a “wet” signature
• Electronic signature may take a variety of forms, depending on the nature of the transactions
• If a signature is required by law without specification of type, one may use an advanced
electronic signature
• Advanced electronic signature: an electronic signature resulting from a process that has been
accredited by the Director General of the Department of Communications acting as
Accreditation Authority
Formalities prescribed by parties
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Creation of contract
• Parties to oral agreement – may insist that it should be reduced to writing & signed
• Can be one of 2 purposes:
a. Written record of agreement [proof] –Agreement is binding even if not reduced to writing
b. Parties can intend that Oral Agreement is not binding upon them until reduced to writing &
signed i.e. Oral Agreement lacks contractual force and will only become a contract until
formalities are adhered to.
• Which purpose parties intend is a matter of fact
• Contrary to any evidence, the law presumes that their intention was to get proof of agreement
• Party who alleges otherwise [i.e. writing was a formality] must prove it.
• Goldblatt vs Fremantle – no contract existed because parties intended agreement to be in
writing which also involved signing.
• Intention of parties to ‘writing’ is decisive.
• If no evidence of the intention, an electronic contract which complies with Section 12 of
Electronic Communications & transactions Act should usually comply with formality of
writing.
• If intention was to reduce to writing to have a binding contract, the parties can change their
minds and do away with requirement of writing, and the oral agreement will prevail
Variation of contract – Non-Variation Clauses and the Shifren Principle

• Parties can prescribed formalities for variation
• Common practice to insert NON-VARIATION CLAUSE in written contract i.e. NO VARIATION
OF THIS AGREEMENT SHALL BE OF ANY FORCE OR EFFECT UNLESS REDUCED TO
WRITING AND SIGNED BY THE PARTIES TO THIS AGREEMENT
• Before there was doubt whether parties could restrict freedom to amend contract orally but
these doubts were addressed in the Case of SA Sentrale Ko-operatiewe Graanmaatskappy
vs Shifren
o Held: Non-Variation clause was not against public policy and that oral variation of
contract was effective if the clause barred oral variation.
o Purpose of clause: to prevent dispute between parties & problems of proof that might
arise if oral variations were permitted.
▪ Giving effect to clause was in line with pacta sunt servanda : agreements are
freely and seriously entered into must be enforced in public interest.
▪ By inserting a Non-Variation clause, parties had limited their power to alter
contract by binding themselves to a formal procedure for variation.
Cancellation of contract: non-cancellation clauses

• General Rule: parties are free to cancel at any time by agreement
• Impala Distributors vs Taunus Chemical Manufacturing Co. : Because parties can agree
on formalities to create and vary contracts, they should also be able to prescribe formalities to
cancel.
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o Standard practice to insert in a written contract a NON-CANCELLATION CLAUSE in

order to prescribe formalities for cancellation.
o Interpreted restrictively – applies to consensual cancellation/ mutual consent
o It does not prevent a party from cancelling unilaterally because of breach by the other
party
o Non-cancellation clause in this case stated: “THIS AGREEMENT MAY BE
TERMINATED BY MUTUAL CONSENT IN WRITING OF THE PARTIES”
o HELD: Had it not been for the Non-Variation clause, parties would have been free to
vary non-cancellation informally by dropping requirement of writing. The inclusion of
the Non-variation clause – had effect of entrenching both the non-variation and non-
cancellation clauses against oral variation.
o To be effective – non-cancellation clause must be coupled with non-variation clause
o Present wording: “NO VARIATION OR CONSENSUAL CANCELLATION OF THIS
CONTRACT SHALL BE OF ANY FORCE OR EFFECT UNLESS REDDUCED TO
WRITING & SIGNED BY THE PARTIES”
Shifren principle and its limitations

• Shifren Principle: Clause does not deprive them of freedom of contract since they could still
vary the contract but subject to formalities which they had agreed upon.
o The principle can produce results which appear to be unjust
o Courts have tried to soften, limit or avoid the principle by relying on estoppel, waiver,
pacta de non petendo & good faith.
▪ e.g. lessor and lessee orally agree to reduce rent from R 3500 to R3000 per
month - even though there is a non-variation clause in the agreement - the
lessee reminds the lessor of the non-variation clause - the lessor promises the
lessee of the need to reduce the variation to writing - but the lessor tells the
lessee that he regards himself as being bound to that agreement - this contract
also contains a clause providing that the lessor may cancel the contract for
breach by the lessee (including for failure to pay the full amount of rent due) -
the lessor accepts the reduced rent for 4 months but on the 5th month the
lessor cancels the contract without any warning and claims the full amount as
well R2000 for arrear rental for the previous 4 months - this would obviously
result in unconscionable conduct - in these situations the court must limit the
application of the SHIFREN principle
• Restrictive interpretation:
o Non-variation clause must be interpreted restrictively because it limits parties’ freedom
to contract. Whether the clause protects itself against oral variation is open to
interpretation.
o Non-variation clause only prescribes formalities for variation
o Variation is bilateral, consensual – parties change terms of contract
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o Any legal act that does not amount to a variation will not be affected by non-variation
clause.
• Where the enforcement would be against public policy
o Non variation clauses will not be valid or enforced if it is against public policy -
examples: fraud, creditor acts in bad faith, if enforcement will be unfair
o In the case of Brisley v Drotsky, lessor accepted late payment of the rent by
the lessee for 5 months in terms of an oral agreement.
▪ the lessor exercised a contractual clause that allowed him to cancel the
contract for late payment
▪ the court found that the lessee’s case fell short of the requirement of
exceptional unfairness
▪ the court will not enforce a non-variation agreement if it against
constitutional values
o Exceptions:
▪ Non- Waiver Clause
▪ Non-Variation Clause
▪ Non-Cancellation Clause
• Where the party is estopped from enforcing a non-variation clause
o There is a possibility to use estoppel as a defence
o One of the requirements for estoppel is that the representation must be such as to lead
a reasonable person to believe that he might act safely thereon
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Theme 3: Legality
• Underlying principle of Contract: must be entered into seriously & must be
enforceable
• Comes from principle of Sanctity of Contract [pacta sunt servanda]
• Contracts contrary to Public Policy will be unenforceable
• Public Policy indicating that contract in unenforceable come from Legislation,
Common Law, Good morals & Public Interest
• Since 1994, Public Policy anchored in terms of values enshrined in Constitution
• Determination of Legality/Illegality:
o weighing up of public & private interests.
o policy considerations that contracts are unenforceable is outweighed by policy
considerations that contracts entered into seriously should be enforced.
• One requirement for Contract is that it must be legal
• Illegality results in 2 consequences:
a. illegal contract is void [unenforceable]
b. valid but unenforceable depending on degree of how reprehensible
contract is to society.
• Agreements are illegal if they conflict with Common Law or Legislation - if contracts conclusion,
performance, or reason for conclusion is contrary to Public Interest or Legal prohibition → illegal
= void
Illegal Contracts that are void

• Contracts can be void for many reasons
• Overall consideration: Is Contract against Public Policy?
• The specific illegality may be recognised by Statute, Common Law, Moral & Constitutional values
• Public interest:
o Courts often state contract is illegal because it is contrary to good morals [contra bonos
mores] or public policy
o Interests of society is of paramount importance with regard to public policy
o In SA – interest in a section of a population has to be evaluated in context of a whole.
o Society has an interest in protecting interests of different sections and individuals.
o Individuals and sections have a similar interest in maintaining interest of society as a
whole.
o Sasfin v Beukes: agreements which are clearly inimical to the interests of the community,
whether they are contrary to law or morality, or run counter to social or economic
expedience, will accordingly, on the grounds of public policy not be enforced.
o Recognised public interests include:
▪ Voluntarily concluded contracts – compliance & enforcement
▪ Simple justice between individuals
▪ Parties should have equal bargaining power
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▪ Administration of justice should not be defeated, obstructed, perverted

▪ Safety of state should be preserved
▪ Public services should function properly
▪ Exercise of persons legal rights should not be interfered with.
▪ Public policy has no fixed meaning – it is public opinion, of a particular community
at a particular time
▪ Can change from society to society
▪ Public policy is an open-ended standard
• Not problematic to establish:
o Courts use their discretion to strike down contracts as being contrary to public policy
sparingly – in clear cases. The impropriety of the transaction and public harm element
must be apparent
o Courts will declare contract illegal if they consider the tendency of the contract and not its
actual proven result to be against public policy.
o Court will not declare a contract against public policy simply because it offends a courts
individual sense of propriety and fairness.
o Since 1994, public policy is primarily rooted in the values in the Constitution
o Legal Precedent provide guidelines as to whether a particular contract or terms is contrary
to public policy
Effect of illegal contract – conclusion, performance and object of contract must be lawful
• Some contracts are void because the mere conclusion is contrary to statutory provision, good
morals, public policy E.g.
o contracts that are void on basis of Statutory provisions
o certain pacta successoria
o contracts with enemy subjects
o agreements that oust jurisdiction of courts – summary execution clauses [parate
executie] & conclusive proof causes
• Performance of contract must be legal – illegal performance e.g. contracts to perform crimes
or delicts –
o Where contracts can be carried out in a lawful and unlawful manner, the presumption
is that he parties intended the performance to be legal.
• Purpose or Object of Contract - must be lawful.
o Purpose will only be illegal if both the parties have the same illegal purpose in mind.
o If 1 party is unaware of the other illegal motive, the contract does not have an illegal
purpose, but the innocent party, may validly refuse to perform because of the illegal
purpose.
• Consequences of a contract that is void for illegality
o Rule: illegal contract cannot be enforced
▪ If illegality only affects part of the contract, which can be cut off from the rest
of the contract in certain cases
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▪ If both parties have performed in terms of the void contract, they cannot claim
back such performance where they are equally guilty, unless court allows it.
o Contract cannot be enforced (Ex Turpi Rule)
▪ Illegal contract is void/invalid – 1 requirement for valid contract is absent
▪ Illegal contract creates no obligations – cannot be enforced.
▪ None of the parties can institute action or claim performance
▪ Because from an illegal cause no action arises [ex turpi causa non oritur action]
▪ Damages: cannot be claimed
▪ Court does not have discretion to relax this rule
▪ No exception to rule
▪ Performance by both parties does not make contract legal.
o Severing the illegal part of the contract
▪ Contract sometimes partially illegal
▪ Courts have allowed illegal part to be severed – permitting the remainder to
remain in force.
▪ Courts have refused on occasion because PP requires the whole contract to
be void
▪ Severance of the illegal part depends on the appearance of the intention of
the parties or from inference of the contract’s terms.
▪ Court developed 3 guidelines to determine intention of parties:
▪ Is the illegal part grammatically/notionally distinct from the rest of the
contract? [illegal part can be deleted without rewriting whole contract]
▪ Is the illegal part subsidiary/collateral to main purpose of contract, so if its
eliminated, the substantive character of the contract remains unchanged?
▪ Would the parties have entered in the contract without the illegal part?
o Reclaiming performance that has been made in terms of illegal contracts (Par
Delictum Rule)
▪ If contract is void and there has been performance, restitution of what has been
performed should be granted.
▪ Where ownership of performance has not passed, performance can be
reclaimed with rei vindicatio [owner sues for return of property]
▪ If ownership did pass, performance can be reclaimed based on unjustified
enrichment e.g rental
▪ Par Delictum Rule [in pari delicto potior est conditio possidentis] → where 2
parties are equally morally guilty, the one who is in possession is in the stronger
position Will prevent restitution from taking place.
▪ Does not preclude enforcement of illegal contract by means of claim for
specific performance [ex turpi rule] but is does prevent a party from
reclaiming performance in terms of an unlawful contract.
▪ Based on 2 considerations of public policy:
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a. A court will not assist those who approach it with “unclean hands”; and
b. Unlawful contracts should be discouraged
➢ Rule only applies where parties are equally guilty in
concluding illegal contract.
➢ Rule will not apply where plaintiff is less guilty than defendant
or is not morally guilty.
➢ Minister of Justice vs Van Heerden: recovery of diamonds
form illegal sale - Held: the Rule did not apply
➢ Klokow vs Sullivan (SCA): Rule applied – invalid sale of
liquor license - Rule may operate harshly to a party who
reclaims performance
➢ Jhabjhay vs Cassim (AD) – rule may be relaxed in certain
circumstances – justice between parties Rule based on PP –
PP dictates that justice is done between man and man – court
did not relax the rule Relaxation of rule will depend on facts
▪ The courts must consider the following factors when relaxing the rule:
a. Whether the defendant will be enriched at the expense of the plaintiff if
the rule is not relaxed
b. Whether relaxing the rule would indirectly enforce the illegal contract
c. Any other consideration of public policy
Specific examples of illegal contracts that are void

• Contracts against good morals
o Invalid distinction between contracts against good morals and contracts against public
policy
o No definition for what is contrary to good morals [contra bonos mores]
o Good morals = good behaviour in the community
o In most cases where court held that performance was contrary to good morals, the
conduct was immoral or sexually reprehensible e.g., prostitution, insurance of a brothel
o Maseko v Maseko – Plaintiff, in order to protect her house against execution by
creditors, agreed to marry defendant, transfer the house into his name and then get
divorced, defendant undertook to retransfer house after threat of attachment was over.
Court held the contract was illegal on 3 grounds:
▪ Morally reprehensible – designed to mislead creditors (immoral and against
public policy)
▪ Undermined the institution of marriage
▪ Perpetrated fraud against the court in divorce proceedings
• Statutory illegality
o Legislator gives content to Public policy by expressly/tacitly prohibiting certain types of
contracts under certain circumstances.
o Intention of Legislator is of primary importance in determining if contract is void.
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o Contract is void if law expressly provides or where it declares contract to be of no force

and effect.
o e.g. laws prohibiting sale of dangerous weapons, firearms, alcohol, drugs & diamonds
o Contract aimed at circumventing provisions of a law [in fraudem legis] is illegal and
void.
o Section 90 National Credit Act – certain clauses in credit agreements are unlawful +
remedies
o Court may sever unlawful provision from contract, or alter agreement making it lawful,
or declare whole agreement unlawful.
o S 51 Consumer Protection Act – certain clauses in consumer contracts are unlawful
– renders contract void
o Often contracts are concluded despite prohibition by law and legislator fails to state
whether contract is void
o Difficult to determine for nullity
o The Statute has to be interpreted and court takes following factors into account to
determine if contract is to be void:
▪ What is the object of the statute and what harm is it directed at?
▪ Does the enactment impose a criminal sanction? Usually means that legislator
intended the contract to be void?
▪ Does the enactment merely serve to protect the revenue of the State? If so, it
implies that the legislator intended the contract to be valid.
▪ Does the provision protect and individual or public interest which requires the
voiding of the contract? If so, it indicates that the legislator intends the contract
to be void.
▪ What are the consequences of a particular interpretation of a contact? Balance
of convenience test is applied.
o The above approach may be illustrated with reference to certain forms of gambling and
betting.
o Provisions from the National Gambling Act – “gambling activity” –definition is wide and
includes all forms of wagering and gambling
o Act does not expressly declare gambling contracts to be void.
• Pacta de quota litis, champerty and maintenance

o Pacta De Quota Litis: Agreement where 1 party will provide funds for litigation by the
other party in exchange for a share of the proceeds should the case be successful.
▪ Was regarded with disfavour in Roman & Roman-Dutch law – considered to
encourage speculative litigation – abuse of legal process.
▪ SA law influence by English law –adopted some of its rules
o English law distinguished between Champertous & Maintenance Agreements – illegal
& unenforceable.
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▪ Champertous Agreements – similar to our pacta de quota litis

▪ Maintenance Agreements – 1 party improperly assists another in litigation
because assisting party has no legitimate interest in the litigation and has no
just cause or excuse to join the litigation.
o Courts held: agreements where outsider provided finances to enable a party to litigate
for returns of the proceeds upon success or any agreement whereby a party
“trafficked”, gambled or speculated litigation were invalid
o Litigants with meagre resources litigated through Contingency Fee Act – legal
practitioner to validly conclude a Contingency Fee Agreement
o Can be in the form of “no win, no fee” or practitioner will receive more than his usual
fee if the case is won.
• Unfair contracts
o Individual interests of parties is important in determining if a contract/clause is against
public policy
o Simple Justice & inequality of bargaining power are recognised as public interests
o Unfairness/unreasonableness of contract/clause to 1 party & interest of other party
must be taken into account
o Good Faith principle: what is fair & reasonable?
o Good faith underlies law of contract – but courts have yet to establish how good faith
affects illegality
o Sasfin v Beukes:
▪ A contract is against public policy if so unfair as to be detrimental to the
interests of the community
▪ Courts must be careful not to conclude that the contract is contrary to public
policy merely because its terms, or some of its terms, offend one’s individual
sense of fairness
▪ By way of the terms contained in the contract, S was given full and immediate
control over B’s income
▪ Court held that this was so immoral and incompatible with public interest that
it is therefore contrary to public policy
o Barkhuizen v Napier:
▪ Court found that the right to seek legal redress is not only a constitutional right
but also constitutes public interest
▪ Unequal bargaining power and a lack of understanding of what is being agreed
to are indications of the unfairness of a clause
▪ Court held that the provision under scrutiny in this case was valid and not
against public policy, since the time period it gave the insured to exercise his
right to seek legal redress was not so unreasonable that its unfairness was
manifest
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▪ “as the law currently stands good faith is not a self-standing rule, but an
underlying value that is given expression through existing rules of law”
o African Dawn Property Finance (Pty) Ltd v Dreams Travels and Tours CC:
▪ The mere fact that a term is unfair or operates harshly does not, in itself, lead
to the conclusion that it offends against constitutional principles
• Unfair enforcement of a contract:
o Courts have recently accepted that the unfair enforcement of a contract could be
contrary to public policy
o Brisley v Drotsky:
▪ SCA assumed that the Sasfin principle could be extended to the enforcement
of contractual terms
▪ The unfair enforcement of a non-variation clause related to the existence of the
oral agreement and thus the very purpose of this clause would be defeated if
the defence of unfairness was upheld
o Barkhuizen v Napier:
▪ Enforcement of a contract or clause would be invalid if the enforcement was
so unfair or unreasonable that its enforcement would be contrary to public
policy
o Onus of proof rests on the party seeking to avoid the enforcement of such a
contract/clause
o Courts will look at all circumstances of a case and the reason for non-performance
o Maphango v Aungus:
▪ Fairness must be considered from both parties point of view
Illegal contracts that are valid but enforceable

• Some contracts that are against public policy do not result in invalidity – they are merely
unenforceable by courts
• A party to such contract may not institute action but the ordinary consequences of invalidity do
not apply.
• Such a contract may be validly performed but the one who performed may not claim restitution
• Wagering contracts and restrain of trades are examples of valid but unenforceable contracts
Wagering and gambling contracts

• Gambling Contract – specific form of wager which involves outcome of a game of chance
o National Credit Act 7 of 2004 Section 16(1): consequences of debts arising from
different categories of gambling activities:
▪ Licensed gambling activities – fully enforceable if you have a valid license
▪ Unlicensed lawful gambling activities – debts arising from lawful gambling
activities that are not required to be licensed.
▪ Unlawful gambling activities: unenforceable – contract is void
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▪ Gambling activities of minors/persons excluded from gambling activities –

unenforceable – wagering is void
▪ Informal bets - unenforceable
• Wagering Contract – includes wagering and gambling contracts
o Wagering contracts not fully regulated by legislation but also regulated by Common
Law
o According to the common law, in wagering contracts parties reciprocally promise each
other some performance depending on result, uncertain situation or event without an
independent interest in the result.
▪ Absence of Independent Interest – determines if it is a wagering contract or
not
▪ Party has financial or other legally recognised interest then not a wager e.g.
insurance against fire, motor vehicle if you pass exams
▪ Existence of independent interest renders wager valid & enforceable
▪ Wagering contracts are not illegal / immoral but against Public interest &
unenforceable
Agreements in restraint of trade

• Limitation of someone's freedom to carry on a profession, trade or business Encountered
usually in the following contracts:
o Employment contracts – employee undertakes not to compete with employer after he
leaves employer’s service
o Sales of goodwill of a business – seller agrees with purchaser not to carry on a similar
business in competition
o Partnership agreements – partners agree not to compete with each other after leaving
partnership.
• Enforcement brings 2 contractual values into play which have to be balanced when enforcing
a restraint of trade:
o Sanctity of contract
o Freedom of trade
• English law –courts gave preference to Freedom of Trade – regarded Restraint of Trade as
against PP and therefore void unless the party enforcing the restraint could prove that it was
reasonable.
• Magna Alloys & Research vs Ellis – AD overturned this approach in favour of Sanctity of
Contract. A Restraint of Trade is now valid & enforceable unless the party who is trying to
escape the Restraint can prove that it is contrary to PP & unenforceable.
o Restraint denier bear onus to proves that agreement is contrary to public policy
o Held: Agreement of Restraint of Trade that is contrary to PP is not void but only
unenforceable.
• Interest of Community involve sanctity of Contract & Freedom of Trade
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• Interest of Contracting parties involves interest[s] contract enforcer is trying to protect.

• Basson vs Chilwan (AD) – Restraint of trade only contrary to PP if it is unreasonable.
Reasonableness is determined by weighing up the interests of community & interest of
contracting parties.
o Formulated a test to determine if a restraint of trade is reasonable:
1. Is there an interest of 1 party worthy of protecting?
▪ Is the interest worthy of protection – lack of such interest is indicative that
the contract is against PP & unenforceable
▪ No exhaustive list of protectable interests
▪ Courts refer to “proprietary interests”
▪ Goodwill [trade connections] & confidential information [trade secrets] are
2 generally accepted proprietary interests.
▪ Capital investment is not a protectable interest
▪ Investment in time money & training of employee is not a protectable
interest
2. Is that interest threatened by the conduct of the other?
▪ If the interest is infringed, mere risk of infringement is sufficient
▪ Risk will exist if employee breached ROT & takes up employment with
competitor of former employer –in a similar position & possibility of
disclosing confidential information
3. Does that interest weigh up qualitatively & quantitatively against interest of other party to be
economically active & productive?
▪ Does the restraint go further than necessary to protect the interest
deserving protection?
▪ ROT may only restrict a party’s freedom of trade in relation to area, time,
activities to protect protectable interest.
▪ Reasonableness depends on facts of each case Application of
Reasonableness:
a. Restrain will restrict competition within area
b. Party’s ability to draw away clientele only lasts for a certain period of time
c. Restraint will be unreasonable if it prohibits all involvement with a
competitor of the restraint enforcer.
4. Is there another aspect of PP having nothing to do with the relationship between the parties that
requires the restraint should either be maintained or rejected?
▪ The reasonableness of the restraint is only an indication of whether it is
against PP or not.
Theme 4: Possibility and Certainty

Possibility
• General Rule: impossibility of performance prevents the creation of obligations
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• Contractual obligation must be capable of performance for it to be valid

• Examples of contracts that are void due to non-compliance with this requirement: sale of object
that cannot be delivered because it has been destroyed at conclusion of contract [painting]
object that does not exist [portion of land still to be subdivided]
• Parties can agree to do the impossible for many reasons i.e jokes, lack of mental capacity In
this case, the intention to create binding obligations is absent
• Parties who agree to do the impossible have the intention to create obligations but they do so
under a mistake surrounding the conclusion of the contract. Can therefore = void
• Possibility requirement relates to performance and not to achieve some underlying purpose
Different types of impossibility

• Not all types of impossibility prevent the creation of contractual obligations
• To exclude a creation of contractual obligations, the impossibility has to be of a certain quality
• An important distinction is to determine an impossibility that exists at the time of conclusion of
the contract and one that occurs subsequently
• Subjective and objective Impossibility:
o To render performance impossible, it is insufficient that a party cannot perform –
relative or subjective impossibility is insufficient
o The impossibility must be so serious that nobody can render performance – must be
absolute/objective impossibility
o Subjective impossibility e.g. agree to make payment but does not have money, or to
make delivery but does not have supply of goods.
o This impossibility should not influence creation of obligations.
o Subjective inability of a party to receive or make use of performance does not mean he
escapes liability.
• Factual and Practical Impossibility:
o Theoretically – no obligation arises in the case of objective impossibility
o E.g. container falling of ship
o In practice it is difficult – the performance is not factually possible
o There are means where one party could be capable of performance
o Law recognises performance as being practically or economically impossible –no
obligation arises.
o If subject matter exists at time of conclusion of the contract but not after – NOT factually
impossible. But to retrieve this matter may be practically economically impossible
• Legal Impossibility:
o Performance must be legal
o Question: is it legally possible at the time of conclusion of the contract to render
performance? Is the contract void because of the non-compliance with
possibility or void because of non-compliance with legality?
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o Wilson vs Smith: Distinction: Sub-division of property dealt with in terms of

impossibility not illegality
▪ Distinction between the 2 is relevant when claiming performances in fulfilment
of void contracts
▪ Voidness due to illegality: Par Delictum Rule –bars claim by parties who are
tainted by illegality.
• Initial Impossibility, Supervening Impossibility and Making performance impossible:
o Initial impossibility – performance impossible at conclusion of Contract
o There are cases when impossibility arises after conclusion of contract – valid
obligations arise, but the obligations can terminate or continue to exist depending on
the cause of the impossibility
o Supervening Impossibility – obligations can no longer be performed. Performance
has become objectively/absolutely impossible after conclusion. E.g. house burns down
after conclusion of lease agreement.
o If performance is made impossible through the fault of a party – obligations do not
terminate e.g. if 1 party burns the house down. The aggrieved party can cancel and
claim damages.
Contemplation of impossibility and assumption of risk

• General Rule: objective impossibility of performance precludes creation of contractual
obligations is not uniformly applied in SA law.
• Wilson vs Smith: Held: no obligations can arise in cases of impossibility – not applied to all
cases.
• We must look at the nature of the contract in relation to the parties, circumstances of the case
& nature of the impossibility invoked by the Defendant to see what the general rule ought to be
applied.
• SEE TEST FOR IMPOSSIBILITY A PARA 8.1.3.1 T/B
• Test in Wilson case deals with situation where both parties contemplated impossibility.
• What would be the position if parties foresaw impossibility?
• A party can suffer losses under belief that a valid contract was concluded but is not because
performance was not possible. There doesn’t appear to be any reason why the innocent party
cannot claim damages if the other party wrongfully and culpably instilled the belief.
Warranty: guaranteeing performance

• Warranty-has many meanings
• But here it means: a term favouring 1 party to extend liability of the other party beyond what it
normally would be.
• A concerned party worried that the other party may escape liability because no obligation was
created [because of impossibility] could insist on a warranty for performance.
• If agreed, the obligation is created even though performance is impossible.
• Party in breach of warranty is liable and pays damages.
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• Warranty can be created expressly/tacitly
Consequences of impossibility
• General Rule: no obligation arises if performance is objectively impossible.
• No claim for performance / contractual damages based on breach
• Anything given in purported fulfilment of non-existent obligation has to be returned.
• Duty to return can be enforced with claims of unjustified enrichment
• Contractual obligations that are reciprocal: impossibility of performance of one obligation
automatically means that there cannot be another to render counter performance
• Performance only partially impossible – contract be regarded invalid entirely or obligations
could arise in respect of those performances that are still possible.
• The divisibility of performances is important in determining which of these consequences
ensue.
Certainty
• GENERAL RULE: uncertainty about performance prevents the creation of obligations
• The general requirement for creation of obligations is that the contents must be CERTAIN or
capable of being rendered.
Practical application of certainty

• Difficult to determine if contract is void due to uncertainty
• Uncertainty can arise as to terms of contract and sometime the application of a standard /
mechanism set out in the contract that should be used to determine what has to be performed
Contract aimed at creating another contract: pactum de contrahendo/agreement to agree

• Can be invalid because of uncertainty
• If consensus is provisional, subject to variation, subject to negotiations, needs ratification by
attorney, the content of the contract is too uncertain to give rise to obligations
• Sometimes parties enter into contracts to create further contracts without failing the general
principle
• This would be the case where the terms of the contract to be made in the future are agreed
upon.
• Examples of valid pacta de contrahendo: Options and preference contracts, an agreement to
negotiate in good faith
Vague language and gaps

• Contractual term can be void for uncertainty due to vague language
• Courts will try and interpret agreements in a manner that leads to validity rather than invalidity.
• SA law – Roman maxim: ut res magis valeat quam pereat
• Hillas vs Arcos: problem of court of construction must always be so as to balance matters
without violation of essential principle the dealings of the men may as far possible be treated
as effective and that the law may not incur the reproach of being the destroyer of bargains.
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• SEE PARA 8.2.2.2 T/B
Contracts of indefinite duration

• Parties may enter into contracts for indefinite durations
• Gives rise to uncertainty – courts generally give effect to the contract seeking guidance from
the intention of the presumed intention of the parties
• Examples:
o The parties intend that the contract will be in force until terminated by notice
o Parties intend contract to remain in force for a reasonable period and then terminate
o Parties intend the agreement to endure forever
• PARA 8.2.2.3 T/B
Contracts containing a mechanism where certainty can be obtained

• SA law has adopted the maxim – “something is certain if it can be rendered certain”
• Mechanism for obtaining certainty must function independently of the intention of the parties
• This does not mean that 1 party cannot be involved in the further determination of
performances.
• But such a determination has to be subject to an element of objective control.
• Examples:
o Certainty obtained with reference to a mechanism contained in the contract. Contracts
for repeated performances i.e. rental, to deal with issues of inflation etc.
o Certainty obtained through an objectively determinable external standard/mechanism
o Certainty obtained through determination by a third party.
o Certainty obtained through determination by one of the parties.
Consequences of not meeting certainty requirement

• Obligation that does not meet the certainty requirement is invalid.
• If such an obligation is severable [separated] from other obligations created by the contract, the
other obligations could remain in force.
• The contract is then only partially valid.
• If you cannot sever the offending obligation – the whole contract is void.
• This may prove to be unsatisfactory if the offending clause was supposed to protect only 1 party
and that party wishes to uphold the contract.
• According to case law – that party may be granted the power to elect to abide by the contract
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LEARNING UNIT 4: CONTENTS AND OPERATION OF A CONTRACT

Overview
The process of interpretation can be as simple as referring to a clause in a contract or as difficult as
probing the background circumstances and oral evidence of the parties to the agreement to determine
the purpose. This process falls with the courts when the intention of the parties is not clearly evident
from the signed document. Where there is an oral agreement, the task can take even longer.
Understanding who is liable to perform is an important step in understanding a contract. There are
different liabilities for the different parties, which can take the form of simple, common and joint and
several liabilities. This results in the creation of a duty to perform by one party and the expectation and
enforcement of that performance by another. It is also possible for third parties to be included in the
contract and there are rules that govern these instances. In this learning unit, we will examine the
subject matter of a contract. We will look at the parties to the contract and their respective liabilities, the
obligations and terms of a contract, and the interpretation of contracts.
Theme 1: Parties to a contract

Different types of liability of parties
Number of parties
• As a contract based on agreement presupposes a concurrence of wills & intentions – will always
be at least 2 parties to a contract
• SA Law does not recognise unilateral promise /declaration as a binding contract – a person
cannot contract with himself unless acting in 2 different capacities.
Multiplicity of parties
• Usually 2 parties, but sometimes there more than 2 parties involved
• Provisions of contract must be considered closely with regards to the liability & entitlement of
each party.
• Contract gives rise to multiple obligations, for each obligation there is one 1 debtor & 1 creditor
o Debtor in 1 obligation can be a creditor in another obligation
o When there are multiple parties in respect of each obligation created, there can be a
number of co-debtors & co-creditors
▪ Need to determine the liability of each co-debtor & co-creditor
• Divisibility of contract:
o Performance can be divisible or indivisible
o Divisible – eg: sells 100 cows to 2 buyers
o Indivisible – eg: sells 1 cow to 2 buyers
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o Whether divisible or indivisible does not only depend on nature of performance but also
on the INTENTION of the parties
• Simple joint liability and entitlement:
o Where there are many debtors liable to a creditor & performance is divisible, there is a
STRONG PRESUMPTION THAT LIABILITY WAS INTEDED TO BE JOINT, rather
than joint and several.
o Simple Joint Liability – each debtor is only liable for his proportionate share of
performance, and shares presumed to be equal.
▪ e.g. obligation to pay R 5000 & 5 debtors –each debtor liable for R 1000
equally, unless contract indicates that it was not the intention for all debtors to
be equally indebted.
o Creditors can claim proportionate share of performance – presumed to be equal.
• Joint and several (liability in solidum) liability and entitlement:
o Despite presumption of joint liability, parties can agree expressly/by implication that
liability will be joint & several.
o Applies by operation of law in certain contracts i.e. partnerships, co-signatories on
negotiable instrument.
o Main feature: each co-debtor is liable for the full amount of the debt, and the creditor
can accordingly claim the full amount from any one debtor or more.
o If a debtor has paid full amount/more than his proportionate share, he has an automatic
right of recourse against other co-debtors to recover their proportionate share of the
debt
o If a creditor releases 1 co-debtor from debt, the liability of the remaining co-debtors
would be reduced proportionately.
o If more than 1 co-creditor claims from 1 debtor, can claim the debt entirely or in part.
▪ Payment to any of the co-creditors will discharge the debt in full.
• Collective joint liability and entitlement:
o Where co-debtors are liable to make performance collectively, the creditor cannot
demand performance [whole/part] from debtors individually
o Where co-creditors are jointly entitled to performance from a debtor, no creditor can
claim the entire performance from the debtor [whole/part] – have to act collectively
o Collective form of liability will arise when performance is indivisible
• Sev
Stipulatio alteri and legal consequences

Contracts and 3rd parties
• Contracts usually create rights & duties for the immediate parties, 3rd parties usually
involved/affected by its existence.
• E.g. 3rd parties can play a role in formation of contract as agents or performance.
• 3rd parties can also act as a substitute for one of the original parties.
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Privity of contract:
• Private transaction which creates right & duties for parties
• No qualification to this rule - would be unfair if 2 parties contract and an obligation on the 3rd
without his consent
• This principle is relaxed in relation to the creation of rights & duties since there is no objection
to conferring a benefit to a 3rd party.
• Fact that a contract creates a relationship that is personal to the parties concerned does not
mean that 3rd parties have no duty to respect that relationship
o Intentional interference in that relationship by a 3rd party might constitute a delict
o So too, in circumstances where the doctrine of notice applies, a 3rd party who acquires
property in bad faith might effectively be compelled to discharge a contractual oligation
undertaken by his predecessor-in-title
Representation: contract through an agent:

• To contract through a principal and an agent i.e. principal is a juristic person – can complicate
contracts
• Agency: Principal authorises another person, the agent, to represent him in negotiating the
contract with a 3rd party. Agent enters into negotiations with 3rd party on behalf of Principal.
o If successful, the contract comes into existence between the Principal & 3rd party – not
the agent [not part of the contract]
o Agent is a conduit
o Agent has a separate contract with the Principal to regulate his appoint by the principal,
fees etc.
• Representation: when an agent concludes a juristic act on behalf of the Principal.
o Occurs only when agent has the necessary authority /power to represent the Principal.
o This authority/power can be derived from law. – Juristic Representation
o If the authority/power is derived from a contract - Conventional Representation.
o Power of Attorney: authority/power given to an agent in writing
▪ Power of Attorney: means that Agent is authorised to perform on behalf of
Principal
▪ General POA: authorises the agent to act for the principal general
▪ Special POA: confers on the agent a limited authority to represent the
principal in a specific matter
o Mandate: a contract which gives another a task to perform, although there is no true
agency involved i.e. estate agent not authorised to sell the property, the mandate is
limited to find a buyer with whom the Mandator can conclude a contract with
▪ Principal is the mandator and the agent the mandatary.
• Relationship between Principal and Agent:
o Mainly governed by Common Law principles applicable to Contract & Mandate
o Supplemented by terms agreed upon by parties.
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o Agent occupies a highly fiduciary position – obliged to act in the interest of the Principal,
and not in his own interest.
• Relationship between Principal and 3rd parties:
o Was Consensus reached? → Look at state of mind of the Agent rather than Principal,
because the Agent negotiates for the Principal
o Principal will be vicariously liable for acts of Agent – qui facit per alium facit per se [he
who acts through another is deemed himself to act]
o Principal may be held liable for misrepresentations made by Agent
o So as long as Agent acts within course and scope of authority in concluding contract
with 3rd party, the contract will be between 3 rd party & Principal.
▪ If Agent exceeds authority, Principal will not be bound by contract, but can be
liable for enrichments if they benefit from contract.
▪ 2 situations where Principal will be bound by contract despite Agents authority:
▪ Principal later ratifies contract, when Agent was acting as an Agent if the
Principal was in existence at time of conclusion of contract.
▪ Principal is estopped from denying that Agent was authorised to conclude
contract.
o DOCTRINE OF UNDICLOSED PRINCIPAL: when Agent has actual authority to
represent the Principal, but contracts in his own name without disclosing to the 3 rd
party that he is acting as an Agent.
▪ Agent is personally liable on contract However, Principal can reveal himself
and demand performance from 3rd party provided that he has not performed
to Agent who could suffer prejudice.
▪ If 3rd party learns of the agency, he can elect to claim performance from the
Agent /Principal → Election is final
▪ Undisclosed Principal must not be confused with the Unidentified Principal
▪ Where Agent informs 3rd party that he acts on behalf of a Principal whose
IDENTITY he refuses to disclose & 3 rd party is willing to contract on that
basis – the contract will only be between the 3 rd party and Unidentified
Principal
▪ At common law it is not possible to represent a non existent Principal e.g.
unborn child, company yet to be formed. –void ab initio
▪ Difficulty in terms of contracting on behalf of a company yet to be formed
▪ Courts answer: STIPULATIO ALTERI [CONTRACT FOR THE BENEFIT
OF 3 RD PARTY, THE COMPANY] later legislature introduced PRE-
INCORPORATION CONTRACTS.
▪ Contract will be binding on corporation only when it comes into existence
and has been ratified
o Agent acting within scope of authority, will incur no liability to 3rd party.
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o If an agent lacks authority to represent Principal or exceeds authority, Agent may be

liable to compensate 3rd party for losses sustained through non fulfilment of contract.
o If Agent warranted [promised] that he had authority to bind Principal, Agent will be liable
to 3rd party for breach of Warranty & damages will be in accordance with 3rd parties
positive interest.
o If an agent misrepresents fraudulently/negligently that he has authority, his liability is
delictual in nature and damages measured in accordance with 3rd parties negative
interest.
Stipulatio Alteri – contract for the benefit of a 3rd party

• Stipulatio alteri: A contract containing provision conferring benefits on persons not party to
contract. e.g. pension agreement, life insurance, inter vivos trust deeds
• Question: how can a person who is not party to a contract acquire rights & benefits in his favour?
o Roman Law General Rule: stipulations in favour of 3rd parties was not enforceable.
o Roman-Dutch writers rejected this rule – different opinions on how and when 3rd
parties acquire rights to benefit.
• SA courts displayed a willingness to enforce contracts favouring 3rd parties – set of rules that
accord to principles of Contract Law.
• Courts laws:
o Two parties can contract for benefit of 3rd party who does not even exist.
o Not sufficient that contract confers some incidental benefit to a 3rd party – required that
parties intend to create an enforceable obligation in favour of 3rd party allowing 3rd
party a legal right to demand performance.
o 3rd party acquires legal right to the benefit only when he notifies 1 party of his
acceptance – before acceptance, the parties can vary/cancel contract.
o Relationship between parties will depend on the terms of the agreement.
o Once 3rd party accepts benefit, he has an enforceable right to enforce performance to
him by the one party.
o Where the benefit held out to 3rd party carries with it a reciprocal obligation, 3rd party
cannot accept the benefit without accepting the obligations that go with it.
• The construction that enjoys the most support in the case law and the literature is that the
stipulatio alteri in reality consists of 2 bilateral relationships – one between A and B, and another
between B and C
o The promittens (B) is under a legal duty, owed to the stipulans (A), to make an offer to
the 3rd party (C), or perhaps, to keep open for possible acceptance by C the offer of the
benefit that is implicit in the terms of the contract between A and B
o Upon acceptance of the offer by C, the 2nd bilateral relationship comes into being,
between B and C.
o Whether thereafter the relationship between A and B continues to exist, or is
discharged by B having made the offer to C, will depend upon the proper construction
of the contract
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▪ If it is a complex contract entailing other obligations apart from the one to make
an offer to C, the relationship between A and B will persist after acceptance by
C
• The proper construction of the stipulatio alteri is an issue that has been debated for centuries.
The debate continues in our law today. The issue of when exactly the 3 rd party acquires the
right to the benefit is relevant not only in the general law of contract, but also in the law relating
to insolvency, succession, insurance and cession
Transfer of rights and duties to 3rd parties

• A party to a contract may wish to transfer rights & duties that he has acquired through a contract
to a 3rd party.
• This is possible but usually requires the consent of the other party to the contract.
• Ways to transfer such rights & duties:
o Cession: entails a substitution of creditors – rights that creditor has against debtor is
transferred to 3rd party who becomes the creditor in his place.
▪ Cession requires the consent of the transferor [cedent] and tranfereee
[cessionary]
o Delegation: entails a substitution of debtors – requires consent of the parties [debtor,
creditor & 3rd party]
o Novation: where a party wishes to withdraw & be substituted by a 3rd party –original
agreement is terminated and replaced with new parties.
Performance by a 3rd party

• A 3rd party may sometimes intervene in a contractual relationship between others by making a
performance that is owed by one of the parties to that contract
• Note: only by such intervention the 3rd party does not become a party to the contract in question
Performance made to a 3rd party

• If the parties to a contract agree, the debtor may discharge of his obligation by making his
performance to a 3rd party → adiectus solutionis causa
• Such 3rd party is merely added for the sake of payment; unlike the 3rd party beneficiary under a
stipulatio alteri, he does not become a creditor in his own right, with a right to demand
performance from the debtor; not may he claim performance on behalf of the creditor since he
is not the creditor’s agent
Theme 2: Obligations and Terms

Express, implied and tacit terms
Introduction
• Subject matter of the contract i.e. the Obligations to which the contract gives rise to
• The content is usually determined by the parties themselves.
Obligations
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• Obligation: a legal bond between 2 or more persons.

• Comprises both a right & a duty
o Debtor bears a duty to perform
o Creditor has right to claim performance
• All contractual obligations give rise to personal rights and duties
Classification of obligations
• Civil, natural and moral obligations:
o Moral Obligation: duty to fulfil a promise/vow – not a legal obligation → it is a duty that
derives from a social agreement
o Civil Obligation: Legal Obligation that is enforceable by a right of action – if obligation
is not fulfilled, the creditor may sue the debtor for performance.
o Natural Obligation: Unusual – arise when, for e.g. contracting with a minor. Minors
obligation will be a natural obligation OR a wager
▪ May not be enforced by a court of law, although it is not without legal
significance eg: could be set off against a civil one
▪ If someone makes performance owed in terms of a natural obligation, he may
not later reclaim the performance on the basis that it was unowed – so,
although the person may not be sued for performance, if he performs that
performance will be regarded as having been owed
• Reciprocal obligations:
o Create at least 2 obligations that are linked in that performance of one is owed in
exchange of another. e.g. contract of sale, lease
o If there are 2 obligations then there are 2 rights & 2 duties, therefore 2 debtors and 2
creditors.
• Simple, alternative, generic or faculatative obligations:
o Simple: at conclusion of contract, they specify exact performance.
o Alternative: where a party can choose a performance from 2 or more alternatives
o Generic: allows a party to choose a performance from a specified genus/family of
performances.
o Facultative: performance owed by debtor but gives him the right to choose to make a
different specified performance
• Divisible / indivisible performance:
o Whether divisible or indivisible affects the number of obligations which arise from
contract.
o Contract relates to more than 1 performance – more than 1 obligation created.
o There are many obligations arising from a contract as there are distinct / indivisible
performances owed in terms of it.
Terms
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• Terms: Stipulations parties include in their contract, and secondly, provisions that by operation
of law are included in contracts.
• They form the content of contract – gives rise to legal consequences / obligations arising from
contract
• Subject to limits – parties are free to determine terms of the contract.
• Classification of terms can be in accordance with nature & effect.
Essentialia, naturalia and incidentalia

• Requirements for validity must be met – the name does not matter.
• Our law has inherited traditional types of contract.
• Essentialia – distinctive terms to identify a contract as specific or one recognised by Common
Law. e.g. contract of Sale – essentialia – terms stipulating when delivery must take place and
what the purchase prices is.
• Naturalia – terms automatically included in a contract belonging to a class of specific contract
recognised by our law.
o Can be said to be implied – parties do not need to negotiate on it. e.g. latent defects in
sale contract or landlords tacit hypotec. Exclusions e.g. voetstoots clause – parties can
exclude naturalia.
• Exclusions / Exemption clauses – often abused by stronger party – unequal bargaining
power.
• Incidentalia – additional terms (other than essentialia and naturalia) agreed upon by parties
that supplement or modify rights & duties incorporated by law. e.g. sale – parties to pay for
delivery, or purchaser to pay interest.
Express terms
• Expressed terms: Terms specifically agreed upon by the parties that can be made orally or in
writing
• Parties may not necessarily reduce their agreement to writing at the time of conclusion of the
contract - One party can compile and leave with the other to fill in the blanks before signing.
• Alternatively, the terms could be oral and the parties could later reduce to writing.
• Usually contract comes into being when parties come into consensus
• Signed contracts – caveat subscriptor rule:
o A party who signs a contract is bound irrespective of weather he has read/understood
it.
o Caveat Subscriptor: let the signatory beware.
o The rule protects the reliance of the other party.
o Signatory can escape liability in the case of iustus error or where other party
unreasonably relied on the appearance of consensus suggested by the fact that the
contract was signed.
• Standard form contracts:
o Standardised contracts – imposed terms
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o Commonly used by large corporations & public utilities

o Frequently complex, often misunderstood or not read.
o Party presenting a standardised contract to another for signature is expected to draw
attention to terms not commonly expected to be in it
▪ If this is not done, the party sought to be held bound might successfully contend
that since he had not expected such an unusual term, it does not bind him
• Unsigned documents:
o Express terms may be incorporated into the contract by reference. i.e. referring to terms
to be found in some other document not necessarily signed by parties.
o e.g. insurance agreement.
• Ticket cases:
o Ticket refers to terms recorded elsewhere and person purchasing ticket knows or ought
to know where the terms are and what they mean.
• Notices:
o Express terms in notices also known as EXEMPTIONS or OWNERS RISK CLAUSE
excluding liability for negligence on part of service provider.
o Usually posted in parking garages, shopping centres, public venues.
• Consumer Protection Act 68 of 2008:
o CPA aims to protect the consumer by providing that his attention must be drawn to
certain categories of clauses of notices that could be prejudicial
o Consumer must be alerted to any clauses in terms of which he is to assume risk or
liability or acknowledges a particular fact
o Provision or notice must be expressed in plain language – consumer must be alerted
to the notice or provision before he enters into the contract or before he is expected to
pay for the goods/services in question, whichever happens first.
o Consumer must be alerted to the notice or provision ‘in conspicuous manner and form
that is likely to attract the attention of an ordinarily alert consumer, having regard to the
circumstances, and the consumer must be given sufficient chance to understand it.’
o With regards to situations involving serious or unexpected risk to the consumer – in
addition to the suppliers complying with the above requirements, the Act requires that
the consumer must indicate his assent to the clause or notice by signature, or by
otherwise acting in a manner consistent with acknowledgement of the notice,
awareness of the risk and acceptance of the provision
• Terms prohibited by law:
o Parties cannot simply elect the terms to a contract.
o If the contract is immoral or contrary to public policy it will not be enforced.
o If terms conflict with statutory prohibition it may be invalid.
• Tacit contracts:
o Contracts that are inferred from conduct of parties
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o e.g. lease expires but lessee remains on leased premises and lessor continues to
accept rental. Very problematic – has consensus been reached?
Implied terms
• Terms explicitly agreed upon by parties may be implied by operation of law [ex lege] by custom,
usage or facts surrounding the agreement [ex consensus]
• Terms implied ex lege:
o Terms ex lege are imported into contract by operation of law unless parties exclude it.
o Can be regarded as imposed terms.
o Such implied terms regulate the many incidents of a contract that the parties may say
nothing about or may not even know about.
o Terms implied by common law – employees duty to act in good faith; employers duty
to pay employee; Borrowers duty to return to lender etc.
o Terms implied by statute – by imposing naturalia – common law seeks to protect
parties against hazards usually associated with specific contracts. - there can be a
variety of hazards e.g mass contracting using standard forms – incomprehensible to
lay persons
▪ This is why the legislature has intervened e.g labour law – to prevent
unfairness to employees, NCA, CPA
Tacit terms
• Parties do not specifically agree upon but without anything being said is expected from them. •
It is a wordless understanding having the same effect of an express term.
• Established by considering the express terms and circumstances surrounding the type of
contract.
• To determine if a contract has a tacit term: OFFICIOUS BYSTANDER TEST – the court
supposes that an impartial bystander was present at the time of the conclusion of the contract
and determines what the parties did not foresee and what were the express terms of the
contract.
• If they were to agree that the answer to the bystanders questions was self-evident they are
taken to incorporate the term as a tacit one into the contract.
• 2 things must be established:
o it is obvious that the term sought to be imported must not conflict with an unambiguous
express term of contract: tacit terms can only be imported into contract if it is necessary
in a business sense –BUSINESS EFFICACY TEST
o terms must be capable of clear and exact formulation. – this is done objectively -
important term for importation of tacit terms is trade usage. – in a particular trade
subject to trade usages, parties are considered as tacitly incorporating into contract.
Application of rectification doctrine

• Material terms: those that are vital to the performance of the obligations to be performed
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o Gives the aggrieved party the right to cancel the contract if it is breached – one that
goes to the root of the contract
• Non-material terms: one considered to be of less importance to the performance of the
contract
o In the absence of a cancellation clause, an aggrieved party can only claim damages
Conditions and their effect on the contract

• Terms = CONDITIONS – term that qualifies a contractual obligation in such a manner as to
make its operation and consequence and consequences dependent on whether an uncertain
future event will happen or will not happen
• Differ from other terms in as much as they do not confer rights or impose duties with regards to
the performance of the contract, and their fulfilment is not enforceable.
• They merely express parties agreement on what has to happen in the contract on the
occurrence of an “UNCERTAIN FUTURE EVENT”
• Positive conditions:
o Depends on the happening of an uncertain future event e.g. payment of university fees
o Condition fulfilled if event occurs
• Negative conditions:
o Depends on an uncertain future event not happening e.g pay fees if I am not dismissed
from my job.
o Condition fulfilled when it becomes certain that the event cannot occur
• Suspensive conditions:
o Parties agree that performance of obligations will not be enforceable until it is known
whether the condition has been fulfilled or failed in relation to an uncertain future event
o Suspends the operation of the obligation and not the obligation itself
o Obligation comes into being upon conclusion of the contract, but cannot be performed
or enforced until the condition is fulfilled
o Fulfilment or non-fulfilment has a retroactive effect
▪ If condition fulfilled, it is as if the obligatio n has always been operative
▪ If condition is not fulfilled, it is as if the obligation has never come into being →
void ab intitio
o Pending fulfilment or non-fulfilment, a conditional right is created – may be ceded or be
secured by way of suretyship
• Resolutive conditions:
o Parties agree that obligations should operate in full but will come to an end if the
uncertain future event does or does not occur
o If condition fulfilled, the contract will come to an end
o Retroactive effect – obligation treated as void ab initio
• Note: suspensive and resolutive conditions can be positive or negative
• Potestative conditions:
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o Depends on the potential creditor’s doing or not doing something that is entirely within
his power
• Causal conditions:
o Parties agree that the fulfilment of a condition depends on something beyond their
control
• Mixed conditions:
o Depends partly on the creditor’s actions and partly on events beyond the control of both
parties
Interference in fulfilment of conditions

• Parties generally not allowed to interfere deliberately in fulfilment/non-fulfilment of conditions
whether suspensive/resolutive.
• If they do the condition is deemed to have been fulfilled/unfulfilled.
• According to the DOCTRINE OF FICTIONAL FULFILLMENT OF A CONDITION
Time clauses- special and resolutive

• Performance due immediately unless a time clause postpones or fixes a date for performance.
• Time clause/ dies: contractual term which makes the existence of an obligations dependent
on a time/event to arise in future.
• Differs from condition – condition relates to uncertain future event
• Time clause can be resolutive / suspensive:
o Suspensive time clause: Relevant obligations under contract come into existence at
conclusion of contract – operation is postponed.
o Resolutive time clause: Relevant obligations terminate at a certain time/date on the
happening of a future event.
Suppositions, modal clauses, exemption clauses, non-variation clauses, governing law

clauses
• Suppositions:
o Supposition = assumption, that a certain state of affairs exists or existed
o Must be shar4ed by both parties in order to form the basis for the contract ie it must
amount to a term of the contract
o If only one of the parties has agreed to the supposition in mind, it will be legally
irrelevant and tantamount to an error in motive
o Similar to condition in that both may be either express or tacit and both make the effect
of a contract depend on something that is actually uncertain
o Difference between condition is that whilst a condition relates to a future uncertain
event, a supposition relates to a past or present state of affairs
• Modal Clauses/ modus:
o A term that charges the recipient of a performance with a duty to do something in the
future
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o Obligation comes into being upon conclusion of the contract

o Failure to comply with a modal clause constitutes breach of contract
• Exemption clauses/ exclusion clauses/disclaimers:
o Terms that exempt a party from liability that would otherwise be imposed upon him
o Valid and enforceable except where, for example, they purport to exclude liability for
fraud or for injury caused intentionally
• Non-variation clauses:
o A term in a written contract that specifies that the parties may not vary the terms of their
contract by agreement at all, or that they may only do so in writing
o Valid and enforceable and thus, if a contract is varied orally, the variation will have no
legal effect
• Governing law clauses:
o A term that purports to regulate which system of law will govern the legal relationship
of the parties under the contract
o Generally valid and enforceable
o Limited:
▪ Extends only to the law governing the intrinsic validity, effect and interpretation
of the contract
▪ Does not permit the parties to evade a mandatory provision of the law with
which the contract has its closest and most real connection
o In the absence of such a choice of law by the parties, whether express or tacit, the
contract will be governed by the legal system with which, objectively, it has the closest
and most real connection
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LEARNING UNIT 5: Breach of contract and Remedies for breach of contract

Overview
A breach of contract occurs when a party fails to honour her/his obligations under the contract. Once a
party to a contract has been determined to be in breach, it is important to identify the type of breach.
The South African legal system recognises four types of breach of contract: mora/late performance,
positive malperformance, repudiation and prevention of performance. There are various remedies
available to the innocent party in cases of breach of contract, each of which has specific requirements
and results in specific outcomes. In this learning unit, we will examine the forms of breach of contract
recognised by South African law and the requirements of each form, as well as the remedies available
to innocent parties in such cases
Theme 1: Breach of contract

Introduction
• PACTA SUNT SERVANDA: Parties are bound to terms of contract – they have to perform their
obligations
o If they fail to perform their obligations then that party is in BREACH
Specific forms of breached recognised by our law

• MORA DEBITORIS – debtor culpably fails, without lawful excuse, to make timeous
performance of a positive obligation that is due and enforceable and still capable of
performance in spite of such failure
o Elements:
▪ Committed by: debtor
▪ Relates to: time for performance
▪ How committed: debtor fails to perform on time
▪ Fault required?: debatable but yes, on part of debtor
▪ Can it anticipate date for performance: no
o Distinguished from other forms of breach:
▪ Mora consists of an omission [failure to perform on time] – can only occur in
respect of a positive obligation
▪ Debtor acting in breach of a negative obligation or who makes performance
that is incomplete/defective is guilty of positive malperformance
▪ Creditor can reject defective performance and demand proper performance
within a reasonable time, in which case failure would result in mora.
▪ If imperfect performance is made after debtor has been placed in mora –
creditor can elect to treat the breach either as mora or positive mal-
performance.
▪ If debtors delay renders performance impossible – then the breach is
prevention of performance.
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▪ Delay in performance of obligation should not be seen as repudiation, but if the

delay is accompanied by words/conduct evidencing intention not to perform,
the creditor can elect to proceed on the basis of mora debitoris/repudiation
o Requirements:
1. Debt must be due & enforceable
▪ Creditor has a valid right to claim performance and claim cannot be
defeated by any valid defence
▪ GENERAL RULE: creditor may demand performance immediately upon
conclusion of contract or soon thereafter as may reasonably expected.
▪ If parties agreed on a time/date [suspensive condition] – performance is
only due on that date or the fulfilment of the condition
▪ Mora will not exist where debt has been extinguished or debtors
performance is subject to creditor doing something first.
▪ Reciprocal contracts – GENERAL RULE: parties must perform
simultaneously
2. Time for performance must be fixed in contract or by demand –
debtor must have failed to perform timeously
▪ Certainty as to time of performance
▪ Debtor is liable to perform as soon as debt is due but failure to do so
doesn’t amount to mora unless a definite time has been fixed and that time
has arrived.
▪ Time may be fixed by agreement or unilaterally by demand 2 types of Mora
Debitoris:
- Mora ex re – parties have expressly/impliedly stipulated time for
performance. Debtor who fails to perform before or on that date will
automatically be in mora ex re.
➢ Creditor does not need to demand
➢ Time must be certain to arrive and as to when it will arrive
➢ Fulfilment of suspensive condition, uncertain day may render
debt due but not mora because a demand must be made by
creditor
- Mora ex persona – no time stipulated for performance in contract,
expressly or impliedly, mere delay by debtor to perform does not
automatically result in mora [even though the performance is due
and enforceable & delay is unreasonable] creditor must place the
debtor in mora by demanding performance by a definite date or
time reasonable in the circumstances.
➢ Demand is extra judicial letter – oral demand may suffice
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➢ Creditor does not have to wait a reasonable period of time

before making demand so as long as it is made after contract
is entered into.
3. Failure to perform on time must be without legal justification
▪ Fault: Delay must be due to fault of debtor or persons for whom is
responsible
▪ Courts are willing to excuse debtor is there is a legal justification for failure
to perform.
▪ If debtor was in reasonable ignorance/nature of performance owed by him
or that performance was due – there is no mora.
▪ If delay caused by creditor or by circumstances beyond the control of the
debtor – no mora
▪ Impossibility of performance is an excusing factor provided it is temporary
and not debtors fault.
▪ Permanent supervening impossibility discharges the contract or is an
independent breach of contract
▪ Onus is on debtor to show legal justification for delay
o Consequences:
▪ One consequence of mora not shared by other forms of breach is
PERPETUATIO OBLIGATIONIS
- Usually, supervening impossibility of performance that cannot be
attributed to the fault of either party terminates the contract.
- However, if debtor was in mora before performance became
impossible, his obligation is not discharged unless he can show the
thing would have suffered the same fate in the hands of the
creditor.
- If impossibility attaches to performance of the other party –debtor
remains liable to perform
- If it attached to his own performance – debtor must presumably
pay a sum of money in lieu of performance. i.e. damages [provided
creditor does not cancel contract as a result of breach]
- In the context of sale – risk passes to purchaser as soon as
contract is concluded
➢ If the merx (object) is destroyed prior to delivery, purchaser
still has to pay even though seller cannot deliver.
➢ If seller lapses into mora because he cannot deliver, the risk
reverts to seller – seller will not be able to recover the price
the merx
▪ Damages
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- Whether he performs or not, the debtor has to compensate creditor

in damages for losses caused by delay.
- Liquid sums of money – interest is payable from date of mora apart
from any other damages that creditor may suffer.
- Court acts on assumption that had the payment been made the
capital sum would have been productively employed – the mora
interest therefore represents the damages flowing naturally from
the breach
▪ Rescission
- Rescission/cancellation only available in limited circumstances
- The facts that debtor is in mora does not mean creditor can rescind
contract
- With influence from English Law, our courts have extended Lex
Commissoria scope – making it speedier for creditor to rescind
contract if “time is of the essence”. Nel v Cloete: “Time is of the
essence” when:
➢ parties have expressly agreed that if debtor fails to perform
timeously, creditor will be entitled to rescind contract (express
lex commissoria)
➢ Parties have tacitly come to such agreement (tacit lex
commissoria)
➢ In absence of such agreement, creditor has made time of the
essence by sending debtor a notice of rescission.
- Express Lex Commissoria
➢ Clear case – debtor fails to perform on/before stipulated time
in contract, creditor may immediately cancel contract by giving
notice to debtor.
➢ Offer by debtor to perform later does not deprive creditor of
right to cancel
➢ If no time specified for performance – creditor will have to
place debtor in mora ex persona by making demand before
cancelling
➢ Not a resolutive condition – creditor is not obliged to exercise
his right to cancel, he has an election whether to cancel, or to
affirm the contract and insist on performance
➢ Depending on the wording of the cancellation clause, the
creditor may be entitled to rescind even if the breach is not
material, ie: if the obligation in respect of which there has been
a delay in fulfilment is not an important part of the contract
- Tacit Lex Commissoria
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➢ If contract does not have an express cancellation clause, time

is of the essence of the contract IF THEIR COMMON
INTENTION was that in the case of mora, creditor had a right
to cancel contract.
➢ Determining existence of tacit terms to be determined by
consideration of all admissible evidence & intention of parties.
➢ Mere stipulation of a definite time for performance does not
suffice to make time of the essence, but the absence of such
stipulation makes it difficult to argue that the parties
considered timeous performance so vital that delay would give
the creditor a right of rescission
➢ Nature of the contract is relevant but not a decisive factor in
determining whether or not time is impliedly of the essence
➢ Time is very rarely held to be of the essence of a contract for
the sale of land
- Notice of rescission: Where time is not of the essence, courts
have held that creditor can make time of the essence by sending
the debtor a notice of rescission
➢ Notice does not rescind the contract but merely informs the
debtor that the creditor reserves the right to rescind if
performance is not forthcoming by the date mentioned in such
notice. If on that date the creditor acquires and exercises his
right to rescind, the contract is terminated only when the
decision to rescind is communicated to the debtor
➢ However, it appears that if the creditor indicates the notice of
rescission that the contract will automatically be rescinded on
the specified date should the debtor still be in default, no
further notice is required to terminate the contract
➢ In effect, by giving this notice the creditor may unilaterally
impose a lex commissoria on the debtor after the contract has
been concluded. Therefore, the right of rescission created in
this manner has been described as an “extra-contractual”
right and is subject to various limitations
➢ Should not be confused with a demand for performance which
serves to fix a definite time for performance when the contract
fails to do so, in order to place the debtor in mora (ex
persona). Therefore, if no time for performance has been set
in the contract, and time is not of the essence, both a demand
and a notice of rescission are required to give the creditor a
right to rescind – may be done in the same notice
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➢ Creditor need not wait until the debtor is in mora before

sending a notice of rescission – may do so any time after the
conclusion of the contract. Notice must of course allow a
reasonable period for the debtor to perform, even if the debtor
is already in mora – onus on creditor to prove the prescribed
period for compliance in the notice is reasonable
➢ Notice must be clear and unequivocal and must relate to
failure to perform an important term in the contract
▪ Claim for specific performance arises as soon as debt is due & enforceable –
proof of mora is not needed.
• MORA CREDITORIS – creditor culpably fails to cooperate with debtor so debtor cannot perform
his obligations
o Elements:
▪ Committed by: creditor
▪ Relates to: time for performance
▪ How committed: creditor fails to cooperate on time
▪ Fault required?: debatable but must assume yes – fault by creditor
▪ Can it anticipate date for performance: no
o Very often creditor has to cooperate in order for the debtor to perform his obligation.
o Creditor is obliged to lend his cooperation and a culpable failure to do so timeously
constitutes the form of breach: Mora Creditoris
o If the delay of the creditor is coupled with conduct indicative an intention not to honour
the contract the form of breach is repudiation and if the delay endures long enough to
render performance by debtor impossible, it is Prevention of Performance.
o Mora Debitoris & Mora Creditoris cannot coexist in respect of the same obligation
o However, in a reciprocal contract they can coexist.
o Requirements:
1. Obligation to make performance
▪ Debtor must be under an obligation to make performance to Creditor but the
debt need not be enforceable since Mora Creditoris can occur even in respect
of natural obligation.
▪ Debt does not need to be due either – debtor can discharge debt before due
date
▪ Creditor may refuse to accept performance performance if debt is subject to
an unfulfilled subjective condition
2. Cooperation
▪ Cooperation of creditor is necessary for proper performance by debtor
▪ No Mora creditoris in respect of negative obligation nor in respect of positive
obligation discharged without the cooperation of creditor
3. Tender of performance
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▪ Usually, debtor must tender performance to creditor.

▪ Proper performance depends on nature & content of obligation
▪ Generally, debtor must take necessary steps towards performance that are
possible without creditors cooperation & then call upon him to cooperate.
▪ Performance tendered must be full and perfect performance
4. Delay
▪ For Mora Creditoris to exist, creditor must delay accepting performance
▪ The Idea of delay presupposes the time for performance having been fixed.
▪ If time is fixed in contract, Mora Creditoris arises automatically on default of
creditor
▪ If no time fixed, debtor must notify creditor of time he wishes to perform,
allowing creditor reasonable opportunity to prepare the receive performance.
5. Fault
▪ Venter v Venter 1949 (1) SA 768 (A): Delay must be due to the fault of the
creditor.
▪ If caused by vis maior or casus fortuitus, mora creditoris is excluded
o Consequences
▪ Cancellation
- Debtor can cancel contract when “time is of the essence” as per
agreement or where it has been made of the essence by means of
notice of recession which the creditor has failed to comply.
▪ Damages
- If debtor cancels/affirms contract, he is entitled to damages for
losses
- Usually costs for having to re-transport goods, storage costs, loss
of profit, on whole contract
▪ Specific performance
- Debtor elects to abide by contract, he may obtain an order for
specific performance compelling creditor to cooperate.
▪ Counter performance
- Reciprocal contract – creditors delay in receiving performance from
debtor does not relieve him from his counter performance
- Would be wise for debtor to sue creditor for counter performance
when creditor is uncooperative
▪ Care of article and supervening impossibility of performance
- Mora Creditoris relieves duty of debtor to take care of an article he
has to deliver.
- Usually debtor is liable for damages caused by his negligence.
- Creditor bears the risk of supervening impossibility of performance
brought about by debtors negligence.
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▪ Effect on security
- Mora creditoris releases sureties, but its effect on the existence of
mortgage, pledge or lien in uncertain
- Whether debtor remains liable to pay interest on money owed, or
other compensation for the use of a thing, is unclear, but it seems
likely that he will be liable so to pay only if he continues to derive
benefit from the use of the money or thing
▪ Discharge of debt
- Unless he validly cancels the contract or obtains an order
compelling the creditor to cooperate, it is not clear how the debtor
can discharge the debt without having to wait until the period of
prescription has run or until performance has become impossible
• POSITIVE MALPERFORMANCE – debtor performs but in an incomplete/defective manner
o Elements:
▪ Committed by: debtor
▪ Relates to: content of performance
▪ How committed: debtor performs badly
▪ Fault required?: debatable
- Unclear if fault is an element of positive mal-performance.
- It appears that fault is not a requirement but is challenged by
LAWSA
- Debtor can avoid liability by showing that mal-performance was
caused by factors beyond his control or for which he was not blame
o 2 Forms depending if duty is positive or negative:
▪ Duty to do something, debtor performs in an incomplete/defective manner =
positive malperformance
▪ Where debtor performs an act that he is bound to refrain from doing = positive
malperformance
o Remedies
▪ Rescission
- If there is a cancellation clause (lex commissoria) in the contract
entitling the creditor to cancel for the particular type of
malperformance that has occurred, he may of course do so, even
if the breach is not a serious or material one
- Where such a clause requires the creditor to give the debtor notice
of intention to rescind should the breach not be rectified within a
specific period, the creditor may rescind the contract only if such
notice has been given and the debtor remains in default on expiry
of the relevant period
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- In the absence of an applicable cancellation clauses, the creditor

may cancel the contract only if the malperformance is sufficiently
serious
- Where the malperformance relates only to a part of a divisible
contract, the creditor may cancel only that part of the contract that
has been improperly performed
- Once the right to cancel for malperformance has accrued, it is not
lost by the debtor’s tender of full and proper performance
- Creditor may cancel without giving the debtor a chance to remedy
the defect. Sometimes, this may require qualification
▪ Creditor may accept the defective or incomplete performance as partial
performance of the contractual obligation, and claim as fulfilment
• REPUDIATION – committed when a party to a contract by words or conduct, and without lawful
excuse, manifests an unequivocal intention no longer to be bound by the contract or by any
obligation forming part of the contract
o Elements:
▪ Committed by: either party
▪ Relates to: intention to honour contract
▪ How committed: party shows intention not to be bound
▪ Fault required?: no – test is objective
▪ Can it anticipate dare for performance: yes
o Intention to repudiate judged objectively – whether the party accused of repudiation
has acted in such a manner as to lead a reasonable person to believe that he does not
intend to fulfil, or completely fulfil, his party of the contract
▪ Intention to terminate not required, nor is mala fides or fault, though these
elements will often be present
▪ If a party misunderstands the true content, meaning or effect of a contract, and
in good faith disputes his obligation under the contract, his conduct will
constitute repudiation of the agreement if it satisfied the test stated above
o Unjustified attempt to cancel a contract amounts to repudiation
o Repudiation is unlike the other forms of breach listed, in that it may occur before
the time stipulated for performance → known as an anticipatory breach of contract,
in the sense that is predates the time for performance and anticipates some other
form of breach
▪ A party that indicates in advance of the due date that he will not make or accept
the stipulated performance, or that performance will be late, defective or
incomplete, thereby gives notice that he will later commit mora debitoris, mora
creditoris or positive malperformance as the case may be
o Repudiation may also occur after the date of performance, in which case it will often
merely reinforce one of the other forms of breach
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o A mere delay in the making or receiving of performance should not be construed as a

repudiation
o Repudiation constitutes a continuing form of breach
o Thus, having initially elected to uphold the contract and thereby having afforded the
repudiator an opportunity to “repent”, the innocent part may subsequently cancel if the
repudiator persists in his refusal to be bound by the contract
o Consequences of repudiation:
▪ Rescission of contract (acceptance of repudiation)
- Repudiation must be sufficiently serious in nature to merit
rescission
- Repudiation will always entitle the innocent party to rescind – right
to rescind depends on the nature and gravity of the non-
performance or malperformance threatened by the repudiation. if
that breach were to materialise and it would merit rescission of the
contract, the innocent party may forthwith rescind on account of the
repudiation
- Where predicted form of breach malperformance → test is, if such
malperformance were to occur, could one reasonably expect the
innocent party to abide by the contract and to be satisfied with
damages alone?
- Where predicted form of breach mora debitoris → test is, is time of
the essence of the contract?
➢ If not and its merely late performance rather than no
performance at all, the innocent party should not be entitled
to rescind immediately, though may in the usual way create a
right of rescission by sending a notice of rescission even
before the due date of performance.
➢ Should the debtor thereafter not perform on the due date, the
creditor may rescind
➢ If the debtor refuses to perform at all, or rejects the entire
divisible performance, the creditor may rescind that part only
➢ Similar considerations should apply where breach is mora
creditoris
- Where the contract prescribed a procedure to be followed before
the contract may be rescinded for breach, the innocent party not
oblifed to follow this procedure before cancelling when the breach
takes form of repudiation
➢ Guilty party cannot, having repudiated the contract, seek
refuge in one of its terms
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- When the innocent party has a right to rescind and elects to

exercise it by accepting the repudiation, the contract comes to an
end upon communication of this decision to the other party, and
the usual consequences of rescission ensue
➢ Any performance already made in terms of the contract must
be restored
➢ Rescinding party entitled to recover damages, which is
assess in relation to the date of performance rather than date
of repudiation, but subject to the usual rule requiring the
innocent party to take reasonable steps to mitigate his loss.
Where no date for performance fixed by the contract,
damages are assessed in relation to the date of acceptance
▪ Affirmation of contract (rejection of repudiation)
- Relationship of the parties continues exactly as if no repudiation
had ever occurred – repudiation falls away and is as much as legal
nullity as in any other rejected offer
- If repudiation is rejected, it cannot found an immediate claim for
specific performance or damages. This view can be challenged –
submitted that unaccepted repudiation is not devoid of legal effect.
3 reasons:
➢ Since the innocent party cannot reasonably be expected to
make his own performance in the face of outright repudiation
by the other party, his own duty to perform is suspended for
the duration of the repudiation, provided he makes the
repudiating party aware that he is at all times willing and able
to perform should the latter change his mind
➢ Unaccepted repudiation may found an immediate claim for
specific performance, though the order, if granted, would
naturally not be capable of execution prior to the due date of
performance
➢ If one accepts that repudiation is immediate breach of an
existing obligation, it is not at all clear why the innocent party
who elects to rescind should not, in appropriate cases, be
entitled to claim damages immediately
• PREVENTION OF PERFORMANCE – either party renders performance of contract impossible.
o Elements:
▪ Committed by: either party
▪ Relates to: possibility of performance
▪ How committed: party makes performance impossible
▪ Fault required?: yes
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▪ Can it anticipate date for performance: yes

o Contract not terminated
o Not necessary performance should be objectively impossible in order for breach to
arise – subjective impossibility will suffice
o Difference between subjective prevention of performance and repudiation
▪ Subjective prevention of performance → can be committed negligently
▪ Repudiation → committed intentionally
o Performance may be rendered impossible not only on or after date of performance but
even long before such time, in which case the innocent party need not wait until the
inevitable non-performance on the due date before invoking the appropriate remedies
o Also seen as an anticipatory breach of performance
o Remedies:
▪ Specific performance excluded
▪ If the debtor has rendered performance impossible, creditor may:
- Cancel, recover any performance already made on innocent
party’s side, claim for damages for losses suffered due to non-
fulfilment
- Abide by contract, perform side of agreement and claim damages
in lieu of performance from debtor
▪ If creditor has rendered performance impossible, debtor may:
- Cancel, recover any performance already made on innocent
party’s side, claim for damages for losses suffered due to non-
fulfilment
- Abide by contract, claim counter-performance subject to a
reduction of the claim by the amount he saves by not having to
perform on his side
o Partial impossibility and temporary impossibility → see page 317/318 textbook
Theme 2: Remedies for breach of contract

Different remedies, effectiveness of each and implications for innocent party
Introduction
• Short life contracts, long lifespan contracts, indefinites lifespan – can bring contract to lawful
end.
• Once off contracts - agreement terminated by fulfilment of full performance by both parties –
natural end. • NATURAL END = full performance
• Breach interferes with natural end of contract – early termination
• Innocent party entitled to a range of remedies
• Party can force fulfilment of contract or cancel it – innocent party can claim damages
• Damages for losses suffered as a result of breach.
• If no losses sustained, no claim for damages [no punitive damages]
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• Natural claim – for performance

• Cancellation – extraordinary remedy – undoes whole contract
• Innocent party can either cancel agreement or enforce it
Choice, alternative, concurrence of remedies

Types of remedies available to innocent parties after breach
• REMEDIES AIMED AT KEEPING CONTRACT ALIVE
o Pacta Sunt Servanda – contracts must be enforceable
o Remedies:
▪ Exceptio non adimpleti contractus – innocent party refuses to render
performance until such time breaching party has fully performed
- Self-help remedy in cases of reciprocal contracts.
- Innocent party entitled to refuse performance until breaching party
has performed in full
- Requirements:
1. Two performances must be reciprocal to one
another
➢ Reciprocal obligations are obligations created in
exchange for each other i.e. reciprocal contract
➢ Aimed at accomplishing an exchange of performances •
Contracts with obligations for both parties are usually
reciprocal
➢ Some contracts have a number of obligations not
necessarily reciprocal.
➢ Have to determine which specific obligation within the
contract is reciprocal to an obligation of the other party.
➢ Reciprocal or Not? LOOK AT INTENTION OF PARTIES
➢ DID THE PARTIES INTEND TO CREATE THE
OBLIGATIONS IN EXCHANGE FOR EACH OTHER?
➢ PRINCIPLE OF RECIPROCITY
2. Other party must be obliged to perform
first/simultaneously
➢ SEQUENCE OF PERFORMANCES
➢ GENERAL RULE: parties must perform pari passu
[simultaneously] unless
a. Parties have agreed otherwise
b. Naturalia of contract dictate otherwise Lease: landlord
must make premises available then only will he get rent
➢ Employment: employee must perform first then only will
he get salary
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➢ Building Contract: contractor must perform first.

➢ Parties can change sequence of performances
➢ Sequence will be determined by intention of parties &
secondly by naturalia
➢ Intention of parties determined by interpretation of
agreement
➢ Interpretation supported by 2 presumptions:
1. Interdependent obligations are reciprocal unless there
is evidence to the contrary.
2. The common intention is neither party shall be entitled
to enforce performance unless that party has performed
or is ready to perform – simultaneously
- Incomplete performance:
➢ Can be used not only in cases where breaching party has
not performed but also in cases where breaching party
has not performed in full
➢ Defect or incompleteness of performance need not be
serious to justify cancellation.
- Factors affecting application:
➢ ACCEPTANCE OF PART PERFROMANCE
❖ Exceptio Non Adimpleti aimed at keeping
contract intact by ensuring performance.
Innocent party receiving Part-Perfrormance
or Defective Performance who still uses it:
indicates that the party has elected to keep
contract alive.
➢ DEFECTIVE PERFROMANCE & CANCELLATION
❖ BK Tooling case: Must distinguish between
circumstances where contract is cancelled
and when contract is kept alive and the
Exceptio non Adimpleti is used to fend off
claims for performance.
- Courts equitable discretion: reduced contract price
➢ In practice innocent party usually accepts part-
performance and starts using performance.
➢ Can leave breaching party in an unfavourable position
because he may not be able to make full performance
and any claim for counter performance may be
defeated by exceptio non adimpleti.
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➢ Because of the unfairness raised in case law, courts

have used discretion in applying the reciprocity
principle – innocent party using defective/incomplete
performance will have to pay a reduced amount to
breaching party.
➢ Where contract remains intact – courts have an
EQUITABLE DISCRETION to award reduced
contract price depending on nature of defect, cost of
repair, replacement or substitution
➢ The onus to prove the amount of reduction in on the
breaching party claiming reduction
➢ He must show:
❖ Innocent party used the performance to its
advantage even though it was defective
❖ The cost of remedying the defects
❖ It would be equitable to award the contractor
some remuneration even though he breached
the contract
❖ The circumstances as a whole are such that
the court ought to exercise its discretion in
awarding a reduced contract price.
- Scope of remedy: Right to withhold performance is a
temporary defence aimed at obtaining full performance before
being obliged to render counter performance.
▪ Specific Performance – court order forcing breaching party to perform
- Interdict – court order preventing breach that has yet to happen but
it threatening.
- Interdict can be used to ensure specific performance
- Obtained through application to the court
- In term of PACTA SUNT SERVANDA parties are obliged to fulfil
their obligations
- Each party can insist upon full performance subject to him fulfilling
his own performance.
- Primary remedy for breach is SPECIFIC PERFORMANCE
- Order for Specific Performance compels contracting party to make
performance as agreed
- Can be claimed as soon as performance is due & enforceable.
- In practice various guidelines developed for exercise of courts
discretion which were eventually hardened.
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- Benson vs SA Mutual Life Assurance Society – contracting

parties have a right to specific performance subject to courts
overriding discretion to refuse such an order in certain cases.
- Scope – 3 forms:
➢ Claim for payment of sum of money
➢ Claim for performance of some positive act other than
payment of money
➢ Claim to enforce a negative obligation [to stop doing
something]
- Requirements:
➢ Farmer Co-operative Society vs Berry set 2 requirements
1. Plaintiff must have performed or be ready to
carry out his own obligations – tender
performance in terms of reciprocity
2. Defendant must be in a position to perform –
objectively and subjectively possible.
3. A 3rd requirement may be added – the order
must not be against public policy.
➢ The most common cases where courts have refused such
orders is in the case of restraint of trade – contra to public
policy.
➢ Specific performance will not be ordered where performance
has become impossible or where party in breach is insolvent
- Discretion of courts:
➢ Courts have EQUITABLE DISCRETION to refuse Specific
Performance in certain cases.
➢ Discretion must be applied judicially – no hard a fast rules
➢ Court uses certain guidelines in determining when to order
specific performance.
➢ UNDUE HARDSHIP – order refused if it will cause undue
hardship to defaulting party or 3rd parties.
➢ See Haynes vs Kingwilliamstown Municipality.
➢ PERSONAL SERVICES – courts will not enforce agreement
for rendering of personal services of employment.
➢ Such contracts are of an continuous nature and would
therefore be in danger of constant dispute and courts are ill-
equipped to prevent such disputes.
- Execution of order for specific performance:
➢ Executed in accordance with ordinary rules of procedure.
➢ If debtor fails to comply – various way to enforce order.
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➢ To pay a sum of money- writ of execution – sale of property

➢ To perform/not to perform some act – contempt of court
• REMEDIES AIMED AT CANCELLING CONTRACT
o Agreement is summarily terminated
o Is an extraordinary remedy available to innocent party in exceptional circumstances
o Drastic step of bringing the transaction to an abrupt and premature end, contra to
original intention of parties
o Can only cancel contract if breach is sufficiently serious / material.
o Materiality of breach:
▪ Will depend on circumstances and type of breach involved.
• REMEDIES AIMED AT COMPENSATING INNOCENT PARTY FOR LOSS/HARM CAUSED
BY BREACH
o Contractual/delictual damages
o Claim for interest amounts owing
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LEARNING UNIT 6: Transfer and termination of rights and obligations

Overview
The personal rights and duties that are created under a contractual agreement can be transferred by
the creditor to a third party who becomes the new creditor under the agreement. There are various
requirements for the cession of these rights and ensuing consequences that result. The obligations that
exist under a contractual agreement can be terminated by performance, agreement or by the operation
of the law. There are various requirements for each type of termination, and various consequences that
follow as a result. In this learning unit, we will examine the cession of rights and duties to a third party
and the termination of obligations under a contractual agreement.
Theme 1: Cession and termination of rights

Introduction
• Difference between OBLIGATIONARY AGREEMENTS & TRANSFER AGREEMENTS
• Contract = OBLIGATIONARY AGREEMENTS
• Cession = TRANSFER AGREEMENTS
• Juristic act to transfer rights = Cession
• Cession occurs when Creditor [Cedant] transfer personal rights against Debtor to a 3rd party
[Cessionary]
Nature of cession
• Persons Estate = Assets + Liabilities – comprises rights & duties
• Rights can be Real or Personal Rights
o Personal right → a claim to a performance owed under an obligation
• Often necessary for personal rights to be transferred from one person to another
• Where a holder of a personal right wishes to dispose of it voluntarily, the transfer of the right
is effected by means of cession
• Cession: an act of transfer whereby a personal right or claim is transferred from the estate of
one person (the cedent) to the estate of another person (the cessionary) by means of an
agreement between both parties
• Out-and-out cession – to transfer personal right from estate of cedent to cessionary → the
normal form of cession
• Difference between cession and traditio:
o Traditio → has both a physical element and mental element
o Cession → no comparable physical element because there can be no physical delivery
of an incorporeal thing, thus the right is transferred by mere agreement between parties
Subject matter of cession

• Only personal rights are transferred via cession
• Other rights require more than just agreement to transfer
o Real rights in corporeals are transferred by delivery/registration
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• What is being transferred is the creditor’s personal right against another

• Must be certainty as to the subject matter of the cession – must be clear or determinable what
personal right is being ceded, but the extent or value of the right need not be certain at the
moment of cession
Requirements for valid cession

• Valid causa
o Cession, like a transfer of an asset, must have an underlying CAUSA – this is because
people do not just transfer property for no reason at all
o The reason for transfer will be found in a contract usually
▪ Transfer occurs because transferor has bound himself by contract to transfer
the thing to another
o Reason may also be found in a will or court judgment
o What if the underlying causa is invalid? Does it make the transfer invalid too?
▪ In property law, abstract system is chosen opposed to causal system –
invalidity of the causa will not in itself affect the validity of the transfer of the
corporeal property
▪ Same will apply to transfer of incorporeal personal rights by cession
▪ Personal right will be transferred from the estate of the cedent to the estate of
the cessionary even if the underlying causa should be invalid. However, since
the right has passed sine causa (without good cause), the cedent may be able
to recover it on the grounds of unjustified enrichment
▪ It may thus be said that a valid causa is required for the cession to have
permanent effect
• Entitlement of cedent to dispose of personal right
o NEMO PLUS IURIS – no person can transfer more rights than he has
o Applies to transfer of all rights including personal rights
o Cedant must be holder of personal right in question in order to transfer it
• Personal right must be capable of cession
o GENERAL RULE: all personal rights are freely cedable
o Exceptions hereunder
▪ CONTINGENT RIGHTS – fact that right is not immediately enforceable does
not mean it cannot be ceded
- Rights subject to a time clause can be ceded
- Rights subject to suspensive & resolutive conditions can be ceded
▪ FUTURE RIGHTS – a right that does not yet exist, it is merely a hope of a right
(spes)
- Different from a right subject to a suspensive or resolutive condition
- It is an expectation that a right will arise in the future
- There is, as yet, no obligation and accordingly no claim to any
performance at all
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- Courts have decided that while parties may validly enter into an
agreement that purports to transfer future rights, the actual transfer
of the right in question will take place only once the right has come
into existence
▪ RIGHTS TOO PERSONAL TO BE CEDED – e.g. maintenance, claims for pain
& suffering, rei vindication etc.
▪ DELECTUS PERSONAE – identity of creditor is of importance to debtor, right
cannot be ceded without consent of debtor
- Debtor has a choice of person
- Obligation is of such a personal nature that it could make a
reasonable or substantial difference to debtor whether the
Cedant/cessionary were entitled to enforce the right.
▪ PACTUM DE NON CEDENDO – where contract has clause stating that rights
may not be ceded, or ceded with consent of other party.
- It amounts to a restraint of alienation
• Transfer agreement
o Cession is a bilateral act which is transferred via agreement, therefore requires a
meeting of the minds of the parties
o Cedant must have intention to transfer personal right to cessionary
o Cessionary must have concurring interest in transferring right
o Results in a transfer agreement which is predicated on a cession
o Can be concluded expressly/tacitly.
• Formalities
o No formalities are required for valid cession
o Parties can declare their intentions by any means
o No need for a formal deed of cession
o No need to inform debtor of cession or to obtain his consent
• Legality
o It is unlawful if prohibited by statute or by common law or contrary to public policy
o Illegality can relate to conclusion, implementation or underlying purpose
o Legality of cession is judged independently from legality of underlying causa.
o Examples of cession that are illegal:
▪ Cession of right to pension prohibited by statue
▪ Cession in fraud of ones creditors prohibited by common law
▪ Cession to an enemy alien during time of war
• Cession should not prejudice the debtor
o Should not make the debtor’s position more burdensome
o Rule manifests itself clearly in 2 areas:
▪ Splitting of claims – right or claim can only be ceded in its entirety, not
piecemeal, to various cessionaries
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▪ Mala fide cession – if a claim is ceded in bad faith with the common intention
on the part of both cedent and cessionary depriving the debtor of the
opportunity to raise a counter-claim against the cedent, the court will come to
the assistance of the debtor and postpone judgment on the debtor’s counter-
claim against the cedent
Consequences of cession
• Cedent is divested of right - cedent is divested of ceded right, so the right is no longer an asset
in his estate and cannot be attached by the cedent’s creditors and if he is to fall insolvent, it will
not form part of the insolvent estate
• Rights vest in cessionary - rights vests with cessionary, right becomes an asset in cessionary's
estate and may thus be attached by his creditors, and in the event of insolvency, will fall into
the cessionary’s insolvent estate
• Cessionary is a substitute creditor - cessionary steps into shoes of cedent as the new creditor,
so only he is thereafter entitled to enforce the right, to transfer it to another or to release a
debtor from liability
• NEMO PLUS IURIS AD ALIUM TRANSFERRE POTEST QUAM IPSE HABERET
o No person can transfer more rights than he has
o Implications include the following:
▪ No longer holder of the run thus can no longer transfer it to another
▪ Right passes from cedent to cessionary with all its benefits and privileges, but
also subject to all its defects, disadvantages and limitations because the
cessionary can never be in a better position than the one previously occupied
by the cedent
▪ A counter-claim that could have been brought against the cedent may not be
brought against the cessionary, even if the latter is obliged to defend the
cedent. This is because a cession transfers only rights and not duties
• Performance by debtor must be made to cessionary
o Cessionary is the new creditor, therefore performance by the debtor must be made to
the cessionary rather than to the cedent
o If the debtor has not been notified of the cession and good faith makes a payment or
other performance to the cedent, or makes an agreement with the cedent or invokes a
set-off against the cedent, he is released from liability
▪ Cedent who accepts performance in these circumstances acts in bad faith
towards the cessionary and is in breach of the obligationary agreement that
underlies the cession
▪ Cessionary will usually have a claim for compensation against the cedent
▪ Release of the debtor in the circumstances above seems to offend against two
principles:
- Cession effects a transfer of the right to the cessionary, making
him the true creditor of the debtor
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- Performance to someone other than the true creditor will not

discharge the debt
▪ Theoretical justification existing for the departure from principle:
- Estoppel approach
- Brook v Jones – good faith approach – did the debtor act in good
faith by performing to the cedent?
➢ If debtor aware of cession, will generally not act in good faith
if he subsequently performs to the cedent
Security cession (Cession in securitatem debiti)

• Security of Cessions – right is transferred for limited purpose of securing debt owed by cedent
to cessionary
• Intention of parties : upon discharge of secured debt – cedent regains full title to right
• Borrowers usually cede claims against debtors e.g. book debts, insurance policies
• Cede to lending institutions as security for due repayments 2 types of security cession:
o Ordinary Cession/ Fiduciary cession [out-and-out transfer] + agreement to transfer right
back once secured debt was paid
▪ Parties must make intention clear – otherwise will construe it a s a pledge
▪ It is an out-and-out transfer of right for security for a debt coupled with an
agreement to re-cede right when debt is paid.
▪ Full title of right passes to cessionary – complete transfer of right
▪ Relationship between cedent and cessionary regulated by fiduciary agreement
[pactum fiduciae] – ordinary contract creating rights and duties for parties.
▪ Construction must be sound
▪ Court will only construe security cession to be of this type if the parties have
clearly indicated that this is their intention
▪ Risk that right may fall into insolvent estate of cessionary
o Pledge
▪ The Appellate Division has favoured Pledge
▪ Pledge of a personal right
▪ Pledge of a corporeal [tangible] thing, the pledger retains ownership of the
thing but surrenders possession of it to pledgee who acquires a limited real
right of it.
▪ Real right will only endure so as long as property remains with pledgee
▪ Pledge ends when pledge debt is paid.
▪ If pledger fails to pay debt, pledgee may sell property and use proceeds to
satisfy the debt.
▪ Surplus will be paid to pledger
▪ Incoporeals [untangible]: how can cedent transfer personal right to cessionary
and retain bare dominium/title over right?
▪ Possession is central to pledge.
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▪ Courts take a pragmatic approach:

- When personal right is pledged as security, cession does not result
in a complete transfer of right to cessionary. Cedent retains
residual interest in the right despite cession. This residual right =
bare dominium/reversionary right
- Personal right automatically reverts to cedent once principal debt
is paid.
- What is transferred to cessionary is “quasi possession” of right.
- Construction theoretically unacceptable
- Court will use this construction by default – where there is a lack of
intention by parties.
- No risk that right may fall into insolvent estate of cessionary.
Ways to extinguish obligations

• Termination by performance
o Required performance:
▪ Only full and proper performance as agreed will extinguish the oligation
▪ If creditor refuses improper or defective performance, he will not be in mora
creditoris
▪ Creditor may, in his discretion, accept a different performance from that which
was due. If the substitute performance is defective, the creditor may sue either
on the original obligation or on account of the defect in the substitute
performance
o Performance by a 3rd party:
▪ Obligation may be extinguished where a 3rd party performs with the intention
of performing on behalf of the debtor
▪ Creditor cannot refuse such performance if he would not be prejudiced and if
performance is of a personal nature
▪ The 3rd party who has validly performed on behalf of the debtor may have a
right to be reimbursed by the debtor, or alternatively, may have a claim arising
from managing another’s affairs or unjustified enrichment
o Person to whom performance must be made:
▪ Should ordinarily be made to the creditor, but the creditor may appoint a person
to whom the debtor may perform
▪ Adjectus solutionis cause: 3rd party who is entitled to receive performance,
but is not authorised to claim performance
▪ Where creditor and debtor have agreed that debtor may perform to a 3rd party,
the creditor may only insist on performance to himself where he has a good
reason to object to performance to the 3rd party
o Place of performance:
▪ Must be made at the place agreed upon by the parties
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▪ Tacit agreement will suffice

▪ In absent of express or tacit agreement, court will determine the place by
considering circumstances such as usages, place of contracting, place where
goods situated and nature of performance
o Time of performance
▪ May also be agreed upon expressly or tacitly
▪ In the absence of agreement, creditor may demand performance immediately,
but the debtor must have a reasonable time in which to perform
• Termination by agreement
o Release and waiver:
▪ Release = express/tacit agreement that debtor is freed from obligation
- Debtor is released from performance in part/whole
▪ Waiver = used synonymously with release agreement.
- Denotes a unilateral act of abandoning a right.
o Novation:
▪ agreement to extinguish and replace 1 or more obligations with a new
obligation.
▪ accessory obligations to original debt i.e. pledge/suretyship are extinguished
by agreement to novate the debt.
o Compromise:
▪ agreement where parties settle dispute/uncertainty between themselves.
▪ New obligations are created in the process and any existing obligations are
extinguished.
o Effluxion of time:
▪ contracts with fixed period of duration – will terminate automatically upon
expiration of such period.
o Notice:
▪ contract can provide for termination by notice
▪ Continuous contract with no specific termination period is normally
extinguishable by notice within a reasonable period of time.
• Termination by operation of law
o Set-off:
▪ 2 parties have claims against each other
▪ If requirements for sett-off are met, both debts are extinguished when they are
for the same amount
▪ If not for the same amount, the smaller debt is extinguished and the larger debt
is reduced by the amount of the smaller debt
▪ Requirements:
1. Debts must exist between the same 2 persons in the same capacities
2. Debts must be of same kind/nature
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3. both debts must due and enforceable

4. Both debts must be liquidated – capable of easy proof
o Merger:
▪ when a person becomes both creditor and debtor in respect of a debt
o Supervening impossibility of performance:
▪ performance is objectively impossible at conclusion of contract
▪ General Rule: if performance becomes impossible after conclusion and
through no fault of debtor, obligation is extinguished
▪ This is known as supervening impossibility
▪ Requirements for Supervening Impossibility of Performance:
A. Performance must be objectively Impossible
B. Impossibility must be Unavoidable
o Prescription:
▪ Extinctive Prescription – extinction of obligations by lapse of time.
▪ Chapter III of Prescription Act Periods: S11 of Act Commencement of
Prescription: S 12[1] begins to run on date that debt becomes due.
▪ Interruption:
1. express/tacit agreement of liability by debtor
2. service on debtor of any process demanding payment
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LEARNING UNIT 7: Consumer Protection Act 68 of 2008

Overview
The preamble to the Consumer Protection Act (CPA) refers directly to the socio-economic conditions in
South Africa under the apartheid regime and has a direct outcome of the alleviation of poverty of those
previously disadvantaged and the limitation of unequal power relations that characterise dealings
between consumers and suppliers of goods as well as services. The CPA was introduced to protect
consumers who enter into contractual agreements. The Act does not replace the common-law rules of
contract and as such, consumers may choose to enter into contracts under the CPA or the common-
law. There are certain unalienable rights that the consumer cannot waive when contracting under the
CPA; however, these rights may be waived if the consumer chooses to contract under the common-
law. In this learning unit, we will examine the purpose of the Consumer Protection Act, as well as when
it is applicable and how the courts enforce those rules for the protection of consumers.
Introduction
• Important issues addressed by legislation for the first time in the CPA include product liability
and unfair contract terms
• Not a full codification of SA consumer law, because:
o Does not preclude a customer from relying on any right he may have under the common
law → consumer can choose whether to rely on CPA or CL
o Other legislation applicable to certain consumer transaction remain in force
o Financial services exempted from the CPA
Purposes of the CPA

• Section 4 CPA: a court or tribunal must promote the spirit and purposes of the Act in any matter
before it
• Section 3(1) CPA: purposes of the CPA are to promote and advance the social and economic
welfare of consumers by:
o Establishing legal framework for achievement and maintenance of a fair, accessible,
sustainable consumer market and that is responsible for the benefit of consumer
o Reducing the disadvantages experienced by consumer who have difficulty accessing
the supply of goods and services because they are low-income persons or come from
low income communities, live in remote, isolated or low density population areas or
communities, are minors or seniors, or because their ability to read and comprehend
an advertisement, agreement, instruction, label, warning or notice is limited because of
low literacy, vision impairment or limited fluency in the language in which a transaction
is being concluded
o Promoting fair business practices
o Protecting consumers from unconscionable, unfair and improper trade practices and
deceptive, misleading, unfair or fraudulent conduct
o Improving consumer awareness and access to information, and encouraging informed
consumer choice and behavior
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o Developing a culture of consumer responsibility

o Providing an accessible, consistent and efficient system of redress for consumers
Chapter 2 CPA: fundamental rights

In order to achieve the above-mentioned outcomes, 9 fundamental consumer rights are introduced and
protected, being:
• Right to equality in the consumer market

o Suppliers may not discriminate against consumers on any of the grounds listed in S9
Constitution or Ch2 of the Promotion of Equality and Prevention of Unfair Discrimination
Act when promoting or supplying goods or services
• Right to privacy
o Includes provisions regulating direct marketing → approaching a person, either in
person or by mail or electronic communication, for the direct or indirect purpose of
marketing goods or services or asking for a donation
• Right to choose
o Choose suppliers
o Bundling
o Fixed-term agreements
o Right to cancel advance reservations, bookings or orders
o Right to choose or examine goods
o Delivery and risk
o Unsolicited goods
• Right to disclosure of information
o Right to information in plain and understandable language
o Disclosure on price of goods or services, content or product labelling and trade
descriptions
o Disclosure of grey-market or reconditioned goods
• Right to fair and responsible marketing
o Various specific types of marketing:
▪ Bait marketing
▪ Negative option marketing
▪ Catalogue marketing
▪ Trade coupons
▪ Customer loyalty programmes
▪ Promotional competitions
▪ Alternative work schemes
▪ Referral selling
• Right to fair and honest dealing
o Unconscionable conduct
o False, misleading or deceptive misrepresentations
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• Right to fair, just and reasonable terms and conditions

o General prohibition on unfair terms
o List of prohibited terms
o List of terms that are presumed to be unfair
o Prominence requirements for certain types of twins (S49 CPA)
o Agreements must be in plain language
o Interpretation of contracts
• Right to fair value, good quality and safety
o Quality goods – implied warranty of quality, harm caused by defective goods
o Good-quality services
• Supplier’s accountability to consumers
o CPA governs way in which suppliers deal with a consumer’s funds
Interpretation of CPA
• Must be interpreted in a manner which gives effect to the purposes set out in Section 3 CPA
• Section 2 CPA: when interpreting or applying the Act, the following may be considered:
o Appropriate foreign and international law;
o Appropriate international conventions, declarations or protocols relating to consumer
protection; and
o Any decision of a consumer court, ombud or arbitrator in terms of this Act, to the extent
that such a decision has not been set aside, reversed or overruled by the HC, SCA or
CC
• “Market”: to promote or supply goods or services
o Differs from the ordinary definition of the word – “promote” limited to advertisements,
representations or other conduct aimed at inducing a person to enter a transaction
• “Supply”: in relation to goods, includes sell, rent, exchange and hire in the ordinary course of
business for consideration; or in relation to services, to sell the services, or to perform or cause
them to be performed or provided, or to grant access to any premises, event, activity or facility
in the ordinary course of business for consideration
• Always NB to establish whether a particular provision contains any terms defined in Section 1
CPA before interpreting
When does the CPA apply?

• Applies to every transaction for the supply of goods or services that occurs within the Republic,
unless the transaction is exempted by Section 5(2), (3) and (4)
• Subject to certain exceptions, also apples to the promotion of any goods or services within the
Republic that might result in a transaction covered by the CPA
• Only a supply of goods or services in the supplier’s ordinary course of business is covered by
the CPA
• How to determine whether the CPA applies → NB questions to ask:
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Is the customer a consumer? Is the provider of the goods and services

a supplier?
Is the customer a natural person? Is the provider supplying the goods or
services in the ordinary course of business?
If not a natural person, is the customer a Is the supply for consideration?
juristic person with an annual turnover or
asset value of less than R2 million?
is this type of transaction covered by the CPA?

(if the answer to any of the below questions is YES, then the answer to the above
question will be NO – that is, CPA does not apply to the transaction or only applies
to a limited extent)
Has the particular industry been exempted from the CPA or part of it?
Is the customer the State?
Does the agreement qualify as a credit agreement under the National Credit Act? – if this is
the case, the agreement itself will not be subject to the CPA but the goods and services
supplied in terms of the agreement are subject to it – these goods and services must be of
the quality required by the CPA
Is the agreement an employment contract?
Does the agreement give effect to a collective bargaining agreement within the meaning of
Section 23 of the Con and LRA?
Does the agreement give effect to a collective agreement as defined in Section 213 LRA?
Are the goods or services governed by Financial Services Board Legislation?
Enforcement of the CPA

• CPA makes provision for two central bodies that will be tasked with its enforcement:
o National Consumer Commission (NCC) – adjudication of individual complaints,
investigative powers, issuing of compliance notices and
o National Consumer Tribunal (NCT) - issuing of administrative fine if don’t comply with
notice
• Provision also made for provincial consumer courts
• CPA encourages alternative dispute resolution
• Consumer may not approach an ordinary court before all the remedies available to the
consumer in terms of the CPA have been exhausted
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Contracts Notes 2021

Law of Contract (Varsity College)

Studocu is not sponsored or endorsed by any college or university

LAW OF CONTRACT 2021

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Theme 1: Notion and Basis of Contract .............................................................................................. 4

Requirements and key characteristics of a valid contract ............................................................... 7

Law of contract vs other branches of the law of obligations ............................................................ 9

Historical development of the modern contract ............................................................................. 11

Constitutional impact on the law of contract .................................................................................. 12

The basis of contract...................................................................................................................... 15

Theories of contract ....................................................................................................................... 16

Cornerstones of contract ............................................................................................................... 19

Interplay between competing values ............................................................................................. 22

LEARNING UNIT 2: FORMATION OF CONTRACTS .......................................................................... 29

Theme 1: Offer and Acceptance ....................................................................................................... 29

The offer and its legal effects ......................................................................................................... 29

Requirements for the valid formation of an offer ........................................................................... 30

Offers to the public ......................................................................................................................... 32

Termination of an offer ................................................................................................................... 36

Requirements for valid acceptance ............................................................................................... 37

Other elements of acceptance ....................................................................................................... 37

Breaking off negotiations ............................................................................................................... 40

Pacta de contrahendo .................................................................................................................... 41

Theme 2: Mistake and the absence of consensus ............................................................................ 50

Effect of a mistake on the validity of a contract ............................................................................. 50

Classification of mistake ................................................................................................................ 50

Limitations to the Will Theory ......................................................................................................... 53

Reliance based correctiveness ...................................................................................................... 53

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Contractual impact of common mistake......................................................................................... 60

Theme 3: Improperly obtained consensus ........................................................................................ 61

Undue Influence ............................................................................................................................. 67

Commercial Bribery ....................................................................................................................... 67

LEARNING UNIT 3: REQUIREMENTS OF A VALID CONTRACT ...................................................... 68

Theme 1: Contractual Capacity ......................................................................................................... 68

Legal capacity v Contractual capacity ........................................................................................... 68

Different categories of capacity for natural persons ...................................................................... 69

Contractual capacity of a juristic person ........................................................................................ 72

The State ....................................................................................................................................... 73

Theme 2: Formalities ......................................................................................................................... 74

Prescribed formalities required by law for validity ......................................................................... 74

Prescribed formalities required by law for enforcement against 3 rd parties ................................... 75

Formalities in electronic contracts ................................................................................................. 75

Theme 3: Legality .............................................................................................................................. 80

Illegal Contracts that are void ........................................................................................................ 80

Illegal contracts that are valid but enforceable .............................................................................. 86

Theme 4: Possibility and Certainty .................................................................................................... 88

LEARNING UNIT 4: CONTENTS AND OPERATION OF A CONTRACT ............................................ 93

Theme 1: Parties to a contract .......................................................................................................... 93

Different types of liability of parties ................................................................................................ 93

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Stipulatio alteri and legal consequences ....................................................................................... 94

Theme 2: Obligations and Terms ...................................................................................................... 98

Express, implied and tacit terms .................................................................................................... 98

Application of rectification doctrine .............................................................................................. 102

Time clauses- special and resolutive ........................................................................................... 104

Overview .......................................................................................................................................... 106

Theme 1: Breach of contract ........................................................................................................... 106

Introduction .................................................................................................................................. 106

Specific forms of breached recognised by our law ...................................................................... 106

Theme 2: Remedies for breach of contract ..................................................................................... 117