General Principles of Contract- week 3 Flashcards
Formation of a Contract
Name the 6 Requirements of a Valid Contract
- Consensus- agreement between the parties (offer and acceptance)
- Contractual Capacity
- Legality/Lawfulness
- Possibility of performance
- Certainty
- Formalities
Name the 3 categories of consensus
- True consensus reached expressly/tacitly
- Assumed consensus which consists of terms implied by parties
- Consensus by operation of law
A consensus can only exist when:
- where the parties to the contract have serious and true intention,
- where their respective intentions are identical,
- creation of legal obligation with certain legal consequences.
By what means can an expression of consensus be made?
- a valid offer and
- acceptance.
Define Offer:
Proposal/a declaration of intention made by one party (offeror) to another (offeree) indicating the performance that he/she is prepared to make and the terms on he/she will make it.
An offer is different from an invitation to do business
Name the 5 requirements for a valid offer
- The offer must come to the knowledge of the offeree.
- The offer must be complete and comprehensive (offer must contain all material terms without leaving any material matters for negotiations).
- Clear and certain: offer must be certain enough so that a simple yes will suffice.
- No formalities unless prescribed by legislation.
- Offer must be made with intention to create a legal obligation.
When will the court treat an offer as such?
Nature of advertisement, its wording, or surrounding circumstances make it clear that it’s intended to be an offer.
Is displays of goods in a shop window with price tags attached, an offer or invitation to do business?
An invitation to do business.
When does a contract come into existence when a prospective purchaser makes an offer to buy?
Only when this offer is accepted by the shopkeeper.
Can a supplier require for a consumer to pay more than the displayed price?
Only when the price contains an obvious error or been altered by an unauthorised person.
Does an advertisement promising a reward meet the criteria for a valid offer?
Yes, a reward is an offer to the general public but it must be certain and the offeree must know about it.
When does an auction take place?
Where goods are auctioned in public by an auctioneer to members of the general public.
Name the two types of auction
- Auction with reserve
- Auction without reserve
Describe what “auction with reserve” means.
The auctioneer, in calling for bids, does not make an offer to sell but merely calling for offers and he is at liberty to reject any bid even if it is the highest.
He may even withdraw goods from auction.
Describe what “auction without reserve” means.
The auctioneer, by calling for bids, makes an offer to sell to the highest bidder.
List the 5 ways an offer can be terminated
- Rejection
- Revocation
- Lapsing of time
- Death of offeror/offeree before acceptance
- Contractual incapacity on either party
Explain the termination of an offer: Rejection
Where the offeree expressly or tacitly rejects the offer. Also, where a counter-offer (rejection of the initial offer) is made.
Explain the termination of an offer: Revocation
The offeror may revoke his offer at any time prior to acceptance; only if it is communicated to the offeree before acceptance.
Explain the termination of an offer: Lapsing of time
~Where it is rejected outright or where the offeree in effect rejects it by making a counter offer.
~Where acceptance of the offer is not manifested or communicated in the manner prescribed by the offeror.
~Where either of the parties dies or becomes legally incapable of making a contract.
~Where the proposed contract becomes impossible to perform.
Explain the termination of an offer: Death of offeror/offeree before acceptance
An offer does not create legal obligations, thus no rights or duties can be transferred from deceased estate.
Explain the termination of an offer: Contractual incapacity on either party
Where either the offeror or offeree loses contractual capacity before contract is concluded, the offer expires.
Who may accept offers?
Only person whom the offeror intended to accept may do so; the acceptor must be the person to whom the offer was made.
What constitutes Acceptance?
Acceptance may be effected in writing, or orally.
What 3 requirements will the court look at to decide whether there was acceptance of an offer?
- it must be unequivocal
- it must correspond in content with the offer
- it must meet any requirements stipulated by the offeror as to how, when and where acceptance must be manifested
When and where does acceptance take effect?
Where parties contract at a distance, there is usually a time lag between offeree’s declaration of acceptance and offeror’s learning that the offer has been accepted.
Is it when the offeree declares his acceptance by writing a letter, or when the letter is posted, or when the letter reaches offeror’s address, or only when the offeror reads the letter and ascertains that the offer has been accepted?
- Declaration theory provides that the contract comes into being when and where the offeree express acceptance – that is when the offeree writes or signs the letter of acceptance.
- Expedition theory provides that the contract comes into being when and where the offeree posts his/her letter of acceptance.
What if the offeree wants to revoke acceptance before it reaches the offeror; what theories does this bring into action?
- Reception theory provides that the contract comes into being when the letter of acceptance reaches the address of the offeror.
- Information theory provides that the contract comes into being when and where the offeror learns of the acceptance.
What are the two exceptions to the Information theory?
- Where the offeror stipulates a different method of acceptance: no contract comes into existence if the offeree does not comply with the stipulation.
- Electronic contracts: the reception theory- Contracts entered into by means of email, SMS, or any other means of electronic communication are governed by the Electronic Communications and Transactions Act which provides that an agreement concluded between parties by means of data message is concluded at the time and place where acceptance is received by the offeror.
Whare the 4 factors that influence Consensus?
- Mistake/error (absence of consensus)
- Misrepresentation (improperly obtained consensus)
- Duress
- Undue Influence
- What is an error? and name the two categories of mistakes
A misunderstanding or misconception by one or both parties regarding facts
1. Mistake or error in motive (where there is mistake regarding the reason why a party entered into a contract)
2. Mistake or error regarding the existence and contents of the contract (error in declaration of intent made by parties)
Distinguish between Material and Non-material mistakes
-Material mistakes relate to one of the ‘elements of consensus’ (i.e. serious intention to contract, agreement as to the material aspects of the contract, consciousness of agreement).
-Non-material mistakes influence the parties to enter into the contract, but do not affect an element of consensus.
Define Misrepresentation (improperly obtained consensus)
A false statement of past or present fact that induces another part to contract.
The innocent party must not have known that the statement is false.
Name the three types of Misrepresentations:
- Misrepresentation by conduct
- Misrepresentation by expression of opinion
- Misrepresentation by silence
Define “Misrepresentation by conduct”
A misrepresentation may be in the form of words or conduct, or both
Explain “Misrepresentation by expression of opinion”
A party who expresses opinion represents that he believes what he says and if he genuinely hold the opinion, or knows the relevant facts, he does not make a misrepresentation.
However, if he does not genuinely believe what he says, or does not know facts which justify the opinion, then he misrepresents the present state of his mind and his statement and this amounts to misrepresentation.
Accordingly a party may claim rescission on the basis of an opinion expressed by the other party if he can prove that the opinion did not represent the bona fide view of the other party at the time when he expressed it.
Explain “Misrepresentation by silence”
Silence cannot, strictly speaking, on its own amount to a misrepresentation. However, non- disclosure of a material fact may amount to a misrepresentation if the party remaining silent is under a “duty to disclose” that fact.
This is referred to as a “duty to speak”
How does a party who seeks to set aside a contract prove it was on the grounds of duress?
He was subjected to an
1. imminent threat/inevitable harm which was unlawful and which
2. induced him to enter into the contract.
Explain what “Threat imminent or inevitable harm” entails to cause duress
The innocent party must have been subjected to an imminent threat or inevitable harm either to himself or to a member of his family.
The harm does need to consist of injury to a person/personality interest – but a threat of liberty (threat resulting to imprisonment) or deprivation of or damage to property is sufficient.
May a threat of pure economic harm qualify as duress?
Yes
Explain what “Threat unlawful or immoral” means to cause duress
The threat must have been unlawful or contra boni mores.
Explain what “Innocent party’s fear reasonable” means to cause duress
Rescission of a contract because of duress is competent only if the fear of the innocent party was reasonable in the circumstances.
Therefore, a party who made a threat with the intention and effect of inducing the contract, is not permitted to argue that his victim ought not to have been frightened
so easily.
More unreasonable the fear, the greater will be the reluctance of the court to accept that it actually induced the contract.
Explain what “Threat induced the contract” means to cause duress
The threat must have induced the party to contract when he would not otherwise have done so.
This means that there must be a causal link between the threat +conclusion of
the contract.
The innocent party cannot rescind the contract if, for example, he entered into the
contract because he ultimately perceived it to be in his best interest or because of some factor that is entirely not connected to the threat.
Define Undue Influence.
Relates to the exercise of an influence by guilty party which undermines the independent and rational judgment of the innocent party.
Similar to duress, undue influence is a form of improper pressure that is aimed at inducing another party to enter into a contract.
A party who seeks to set aside a contract on the ground of undue influence must establish what?
✓the other party obtained an influence over him/her;
✓this influence weakened his/her powers and rendered his/her will compliant;
and
✓the other party used this influence in an unscrupulous manner to persuade him/her to agree to a contract that was prejudicial to him/her and which he/she would not have concluded with normal freedom.
✓the influence must have induced the conclusion of the contract.
✓the must be prejudicial to the injured party.
List 3 persons without contractual capacity
- Mentally ill persons
- Infans (under age of 7)
- Persons under the influence of alcohol/drugs (only when unable to form will)
List 4 persons with limited contractual capacity
- Minors (between 7 and 18 years)
- Married persons
- Prodigals
- Insolvent persons
Who are persons with full contractual capacity?
General rule: all persons who fall outside the above categories.
Exceptions= persons found guilty of crime (fraud) or disqualified from holding certain office.
What 2 rules describes the Contractual Capacity of a Minor?
- Generally, minors cannot contract and must be assisted by their legal guardians. [Exception: minors can act without assistance if she obtain rights and no duties (e.g. donation)]
- Assistance may be given before contract is concluded, at time contract is concluded, after contract is concluded – ratification (Note: rights and duties of assisted contracts vest in the minor, and not the guardian)
Can the court (upper guardian of all minors) consent if guardians refuse?
Yes
Are contracts concluded without the assistance of a guardian void?
No, but voidable at the instance of the minor/guardian who may ratify the contract after it had been concluded.
What are unassisted contracts referred to?
“Limping contracts” - can ratify when he/she turns 18 or by guardian before they turn 18.
What effect does being married out of community of property have on contractual capacity?
No effect
What effect does being married in community of property have on contractual capacity?
Spouses can generally contract on behalf of the ‘joint estate’ without consent.
In what four transactions is spouses’ contractual capacity limited by the Matrimonial Property Act 88 of 1984?
- Selling or pledging household furniture, or donating any asset of the joint estate (express or tacit consent required)
- Withdrawing money from other spouses bank account, or selling shares or investments (written consent)
- Selling or encumbering immovable property or binding oneself as surety (written consent, with two witnesses)
- Transactions in the ordinary course and scope of the spouses’ business are exempted from this requirement however.
What are the three main causes of uncertainty in agreements?
- the use of vague and indefinite language: agreement is void if its language is so vague, indefinite, or obscure, or if is so lacking in substance or detail, that the court cannot ascribe to the parties any particular contractual intention.
- the failure to agree on material particulars or provisions.
- the granting to the debtor of an unlimited choice whether to perform or not: the terms of an agreement may be such that the debtor is bound to perform only if he chooses to do so.
True or false: If the performance which either of the parties agrees to carry out is physically or legally impossible, the entire agreement is void?
True
Can parties create contractual obligations that are impossible to perform?
No
In what three terms should an agreement be legal?
- Conclusion
- Performance
- Object
What does it mean when contracts are contra boni mores?
It violates public policy; are void.
When is an agreement void for unfairness?
If it effectively relegates one of the parties to a position of economic servitude, working solely for the benefit of the other party for an indefinite period.
True of false: illegal contracts aren’t void and can be enforced?
False, (ex turpi causa principle)
Can contracts be written or spoken?
Yes; most need not be in writing and nearly all daily contracts are entered into merely by using words.
What six contracts must be in writing to be enforced in a court?
- The sale of land must be in writing and signed by the parties in terms of the Alienation of Land Act of 1981
- A lease for 10 years or longer
- Credit agreements (suretyship)
- Marriage contracts (antenuptial contracts)
- Contracts of apprenticeships
- Donation (must be signed by the donator)
