MER100T,LCM100T, LMK100T, CLW200T

Legal Principles of Contract

 Requirements for a valid contract
Chapter 7
STUDY OBJECTIVES
After studying this study unit, you should be able to:
• Explain the basic requirements for a valid contract
• Explain the subjective and objective elements which must be present before a
contract comes into existence
• Discuss the the requirements for a valid offer and acceptance
• Explain when an offer terminates
• Discuss the date and place of the conclusion of the contract
• Apply the law regarding the above to a practical legal situation

BENDIX 1-25
 Requirements for a valid contract

“When will an agreement be legally enforceable?”

An agreement will be legally enforceable if it meets five requirements, namely:

– Consensus: The parties must have corresponding intentions regarding the

proposed contract and the serious intenion of concluding the contract
– Contractual capacity: The parties must have the necessary capacity to form a
legally recognised intent
– Lawfulness/legality: The contract must be lawful and not contrary to the
common law; statutory rule of law; public policy or good morals
– Performance: The performance must be determinded or determinable and
objectively possible
– Formalities A contract must comply with any formalities precribed by law or
agreed by the parties. Formalities refer to the external visible form of the
contract
We will tackle each requirement separately

BENDIX 1-25
 Consensus

• Consensus is the most important requirement for conclusion of a contract

• The wills of the parties and their intention with the contract is the basis on which
consensus is reached
• As a general rule, before a contract comes into existence there must be real
consensus
• The exception to the rule is that a contract may come into existence at the
absence of real consensus. This will be the case where is apparent agreement (this
is deduced from the actions of the parties instead of what they expressed)
• No contract comes into existence at the absence of real consensus or apparent
consensus
• The term real consensus (also referred to as consensus ad idem or that the parties
are of “one mind”) means that:
 the parties are subjectively (in their minds) in agreement
AND
 are objectively aware of that fact OR considered to be aware of that fact
 Consensus

Real consensus or real agreement consists of two elements, namely:

• A subjective element
This is the “serious intention to contract” on certain “material terms”;
and

• An objective element
The communication by the parties of their subjective intentions to contract on certain
material terms by way of offer and acceptance
 Consensus

Subjective element
• Has two elements: the “serious intention to contract”; on certain “material
terms”;
Serious intention
• As a general rule, before a contract can come into existence the parties to the
contract must have the serious intention to conclude a contract
• “Serious intention” means that the parties intend to conclude a legally binding
contract and not a mere social agreement which is not enforceable in law

• Where X asks Y on a date (say to the movies or a social club or pub) and Y agrees
thereto, the intention is clearly not that such an agreement will be enforceable in
law– it can thus never be a contract. It is said that they do not have the “serious
intention to contract”
• Where X agrees with Y to sell his (X’s) car to Y for R 50 000, the intention is clearly
that such an agreement will be enforceable in law. If one of the parties rescind on
the agreement, the other party will be entitled to the prescribed legal remedies in
order to either enforce the contract or claim damages
 Consensus

Material terms
• As a general rule, before a contract can come into existence the parties to the
contract must have the serious intention to conclude a contract on the same
material terms.
• A “material term” refers to a term which influenced the party’s decision to enter
into the contract. A term is material if a party will not enter into the contract
unless there is agreement on that term
• Material terms may include the following:
 The price of an item which is bought;
 The exact item which is bought;
 The time of delivery could be material;
 The place of delivery could be material;
 The identity or qualifications of the other contract party could be material
(e.g. in the case of an engagement contract or an employment contract)
 Consensus

Objective element
• Parties become aware that their subjective intentions concur by communicating
their subjective intentions to each other
• This communication may take place either tacitly or expressly

Tacitly (i.e. by means of conduct)

This often happens when we buy something at a shop or supermarket. Nothing needs
to be said. The customer merely presents, to the cashier, the article he/she wishes to
buy, produces the necessary money and receives change and a receipt. The contract
comes into existence the moment the cashier accepts the money tendered by the
customer.
Explicit (i.e. by means of words/verbally or in writing)
This happens when A asks B if he/she can buy an item from B for a specified price. If
the B agrees the contract comes into existence

• Parties normally communicate their intentions to each other by means of and offer
and an acceptance or by counteroffers and acceptance
 Offer and acceptance

• An offer is a declaration (announcement) by the offeror (a person who is making

an offer)of his/her intention to conclude a contract on certain material terms

• An acceptance is a declaration (announcement) by the offeree (the person to

whom an offer is made/the person who receives the offer) of his/her intention to
conclude a contract on the material terms set out in the offer

• Once an offer has been accepted, a contract will come into existence, on the
condition that the other requirements for a valid contract has been complied with

• In order to qualify as a valid offer and valid acceptance the offer and acceptance
must meet certain requirements

• An offer is only a unilateral juristic act and cannot create an legal obligation on it’s
own. It does however create the opportunity to create a legal obligation once it
has been accepted
 Requirements for a valid offer

1. The offer must be made with intention to contract

• The offer must be made with the intention that once accepted it will result in a
valid contract. What this really means is that the offer must be made with the
serious intention to conclude a contract
• An offer must thus be distinguished from:
 An invitation to enter into a social agreement; or
 An invitation to make an offer (called an invitation to do business/tender)
• In practice the client will make the offer to the business owner who then
has the right to accept or reject the offer to buy the advertised goods at
the proposed price
• There are exceptions to this rule and some advertisements may constitute
offers e.g. An advertisement to pay a reward if a dog is found. In this case
there is a clear intention to conclude a contract
 Requirements for a valid offer

2. The offer must be complete

• This means that the offer must contain all the material terms on which the offeror
wishes to contract.
• All provisions, conditions, terms and qualifications which will be included in the
final contract
• A counter-offer can be made to include or alter certain provisions

3. Clear and unambiguous

• The material terms on which the offeror wishes to contract must not be vague,
obscure or ambiguous – otherwise it will be impossible for the parties to have the
same facts in mind and thus agreement on the material terms will not exists

4. Communicated to the offeree

• Offer must be addressed to a specific person or a group of persons
 Requirements for a valid acceptance

1. Made with the intention to contract / to be legally bound

• The acceptance must convey the offeree’s intention to contract

2. Complete and unconditional

• The acceptance must convey the offeree’s intention to contract on the same
material terms that the offeror intends to contract upon
• If the offeree coveys his/her intention to contract on terms materially different
from the terms upon which the offeror wishes to contract the offeree is in fact
making a counter offer and becomes the new offeror who’s new offer is now open
to acceptance to the original offeror who now becomes the offeree for purposes
of the new offer
3. Clear and unambiguous
• The offeree must communicate his/her intention, to contract on the same material
terms as those of the offeror
4. Communicated to the offeror
• Acceptance is only complete when the offeror is notified – awareness of the
acceptance of the offer in all material terms
 Requirements for a valid acceptance

Communicated to the offeror

• There is a difference between offers which are communicated to:
— the public in general and are open for acceptance by anyone in the public (like
tenders);
and
– a specific person or group of persons and are ONLY open for acceptance by
that specific person or group of persons as the offer was not intended to be
open to acceptance by anyone else

• An offer may prescribe the manner in which the offer must be accepted (e.g. in
writing) in which case the acceptance will only be valid if it is done in the
prescribed manner

• If no prescription on the manner on the manner of acceptance, then the

acceptance may take place in any manner (.e.g. in writing, verbally, over the
phone, face to face, via email)
 Termination of an offer

• An offer must be accepted before it is terminated. Once it is terminated, the offer

no longer exists and can therefore not be accepted. Once accepted a contract
comes into existence
• An offer terminates at, effluxion of time, revocation, rejection, counteroffer, death
or insanity (incapacity)
• The reason the offer terminates upon any of these events is because consensus
cannot be achieved anymore once any of these events takes place

1. Effluxion of time
• An offer expires once time for accepting the offer has lapsed
• Upon the effluxion (lapse) of the specified period the offer automatically expires
(ceases to exist) and can no longer be accepted
• If no time is specified the offer will automatically expire (cease to exists) after a
reasonable period and will thereafter no longer be open for acceptance.
• What a reasonable time/period constitute will depend on the circumstances of
each case e.g Deed of Sale of Immovable property 90 days is the norm
 Termination of an offer

Revocation:
• The offeror may revoke (withdraw or cancel) the offer at any time before it has
been accepted
• The offer terminates at the moment the revocation comes to the notice of the
offeree
• An exception to this rule is that an offer which is open for an agreed time cannot
be revoked. This is called an Option.
• An Option is in effect an agreement (i.e. a contract) to keep an offer open for a
certain or specified time. In such a case the offeree obtains a legal right (is called a
personal right) to accept the offer within the specified period and the offer cannot
be revoked before the period has lapsed
Example
• The offerree is granted an option for 7 days, to purchase the offer’s Toyota Camry
for an amount of R50 000; or
• The offerree is granted an option until 1 January 2016 to purchase the offer’s
Toyota Camry for an amount of R50 000.
 Termination of an offer

Rejection
• If the offeree rejects the offer, the offer lapses (terminates)
• Once an offer has been rejected it can no longer be accepted
• If the offeree changes his/her mind after rejecting the offer and states that he/ she
want to accept the original offer, the offeree is in fact making a new offer
Counter offer
• If the offeree makes a counter offer, the offer lapses (terminates)
• A counter offer amounts to a rejection PLUS a new offer
Death
• Except for the case of an option (the administrator of the estate of the late party
will exercise the right to the option), an offer terminates at the death of either the
offeror or the offeree
Insanity
• An offer terminates when either the offeror or the offeree or both becomes
insane. The reasons is that an insane person has no contractual capacity (cannot
legally contract)
The End