SU2: General Principles of Law of Contract- week 2

Question 1

Define a Contract

Answer 1

An agreement which creates an obligation between two parties to the agreement.
The basic features of a contract include: agreement as the basis of a contract,
only agreements which creates a legally binding obligation(s),
there must be at least two parties to a contract,
only persons privy to a contract are bound by it.

Question 2

Define Obligation

Answer 2

An obligation consists of a right and a corresponding duty; it is a legal bond between two persons of which one person is bound by law to render a performance to/for the other person.

Question 3

Name and explain the two types of Obligations

Answer 3

1. Unilateral obligations are those where one party only has rights in terms of the contract
   while the other only has duties (however, both must still agree)
2. A bilateral obligation requires both parties to a contract to perform an action (both parties have rights and duties)

Question 4

Name the 4 Foundations of Contract Law

Answer 4

1. Freedom of Contract
2. Sanctity of Contract (pacta sunt servanda)
3. Good Faith (bona fides)
4. Privity of Contract

Question 5

Explain the Foundations of Contract Law: Freedom of Contract

Answer 5

Freedom of individuals to enter into contracts with one another, on terms that they choose, without interference from the state.

Question 6

Explain the Foundations of Contract Law: Sanctity of Contract

Answer 6

Parties to a contract must comply with the terms of a contract.

Question 7

Explain the Foundations of Contract Law: Good Faith

Answer 7

Parties to a contract must behave honestly and fairly.

Question 8

Explain the Foundations of Contract Law: Privity of Contract

Answer 8

Rights created under a contract are enforceable only against parties to contract.

Question 9

Name the Three theories of Contract

Answer 9

1. The consensual/will theory (subjective)
2. The declaration theory (objective)
3. The reliance theory (objective-subjective)

Question 10

Discuss the Theory of Contract: The consensual/will theory

Answer 10

The parties are bound by a contract because they intended to be bound to it.
They have freely chosen (out of own will) to be bound to their agreement,
so the law respects their choice by enforcing the contract.
For the parties to be bound, they must have had the same subjective intention to be bound- there must be consensus

Question 11

Discuss the Theory of Contract: The declaration Theory

Answer 11

Parties are bound by contractual terms because they have declared their intention to enter a binding contract, usually in a formal way.
The focus is on the parties’ declarations- what they said or did when they entered into a contract.
Subjective mind is ignored.

Question 12

Discuss the Theory of Contract: The reliance theory

Answer 12

The reliance theory is developed to protect a party who had reasonable belief that a contract is created between himself and the other party.
If one party creates the impression that
the parties had reached consensus, and the other party reasonably relied on this impression, the parties will be bound by the contract, even if there is no subjective consensus.
- This theory is applied in South Africa.