The nature and basis of contract

Question 1

Define a contract

Answer 1

A contract is an agreement between two or more parties intented to give rise to legally enforceable obligations (animus contrahendi). In an instance where one party leads the other to believe that they have animus contrahendi when in fact they do not, the law will protect the reasonable belief and uphold the contract, despite the absence of a genuine agreement.

Question 2

What is an absolving agreement?

Answer 2

An agreement whereby obligations are discharged or extinguished e.g. cancellation of sale.

Question 3

What is a real agreement?

Answer 3

An agreement whereby rights (real and personal) are transferred e.g. cession.

Question 4

What is marriage?

Answer 4

Not merely a financial transaction, but rather a relationship that confers on the parties a status of public character.

Question 5

What is a judgment by consent?

Answer 5

Two disputing parties may come to an amicable settlement by means of a contract which is then court imposed. This is thus a judicial act, but also a binding civil contract.

Question 6

What are state agreements?

Answer 6

When the state enters the commercial playing field and contracts on behalf of the citizenry, it is held to different level account than an ordinary individual might be. This is to prevent abuse of power and to protect the integrity of its public status.

Question 7

What are the requirements for a valid contract?

Answer 7

1) capacity
2) certainty
3) consensus
4) formalities
5) legality
6) possibility

Question 8

What is the nature of a contract?

Answer 8

• A contract is a juristic act, like a will, unlike a delict
• It is always a bilateral or multilateral act
• It must give rise to an undertaking to do something or refrain from doing something
• The contract must be undertaken consensually

Question 9

What is an obligation?

Answer 9

An obligation is a legal bond between two or more persons, obliging the one (the debtor) to give, do, or refrain from doing something to or for the other (the creditor). This creates the personal right of the creditor to demand a performance by the debtor, and the duty of the debtor to make that performance.

Question 10

What is the difference between a contract and delict?

Answer 10

Contractual obligations are voluntarily assumed by the parties, whereas delictual obligations are imposed by law, irrespective of the will of the parties. They are similar in that they both pay out damages as compensation. Some conduct may attract both contractual and delictual liability (such as surgery).

Question 11

What is the difference between a contract and unjustified enrichment?

Answer 11

Provided that it is valid, a contract serves as valid cause for any shift of wealth that flows from it. If there is no reason for the transfer, only then will unjustified enrichment be a suitable remedy.

Question 12

What was held in Legator McKenna v Shea?

Answer 12

Where both parties to a purported or invalid agreement had performed in full, neither party can recover his or her performance where the legitimate and lawful purpose of their transaction, common to them both, has been achieved.

Question 13

Which categories of contract were recognised under Roman law?

Answer 13

Recognised four distinct categories of contract:

1) real (delivery)
2) verbal (stipulatio)
3) literal (ledger)
4) consensual (sale/lease/mandate/partnership)

Question 14

How did Roman-Dutch law develop the law of contract/

Answer 14

Abandoned the onerous formality of Roman contracts, and accepted as the basis for the law of contract the fundamental principle that, as a matter of good faith, all serious agreements ought to be enforced (pacta sunt servanda). Hence, they were all validly consensual and based on mere agreement and good faith.

Question 15

Does the doctrine of consideration exist in SA law?

Answer 15

The doctrine of consideration forms no part of SA law. Any serious or 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.

Question 16

What is an actual subjective agreement?

Answer 16

The parties must seriously intend to contract, and they must be ad idem as to the material aspects of the contract - namely the terms of the contract, the parties to it, and a conscious meeting of the minds.

This is achieved through a process of communication involving a declaration of wills by the parties i.e. offer and acceptance.

Question 17

What is the will theory?

Answer 17

Parties are bound to a contract because they have chosen to be bound. This is a subjective approach to contract, where consensus is the sole basis of liability. Strict adherence to this theory could lead to unfairness, lack of contractual certainty and economic disaster.

Question 18

What is the declaration theory?

Answer 18

Parties are only bound to a contract because the external manifestation of their will. Their internal thoughts are irrelevant. Thus, objective declaration is thought to be the true basis of the contract. Strict adherence to this theory could also lead to absurd results (where parties did not intend to contract), as well as no room for mistake.

Question 19

What is the reliance theory?

Answer 19

This occupies the middle ground between the aforementioned theories. The basis of contract is to be found in the reasonable belief in the existence of consensus, induced by the conduct of the other party. This theory protects the parties reasonable reliance on a contract.

Question 20

What was held in Steyn v LSA Motors?

Answer 20

There was no consensus between the parties, that there had been an intention to give the prize of a new car to a golfer who scored a hole-in-one, regardless of whether he was a professional or an amateur. The offer was only available to professional players. Hence, Steyn being an amateur, was denied a contractual claim to the car.

Question 21

What is the dual basis of contract in modern law?

Answer 21

First step involves the will theory: did the minds of the parties actually meet i.e. was there consensus.
Second step: If no, did the parties conduct lead the other party to reasonably believe that consensus had been reached?

Question 22

How does one prove the existence of a contract?

Answer 22

The party relying on the contract must produce objective evidence that proves a subjective state of mind.

Question 23

What is freedom and sanctity of contract?

Answer 23

The idea that people are free to decide whether, with whom and on what terms to contract and the idea that contracts freely and seriously entered into must be honoured and, if necessary, enforced by the courts (pacta sunt servanda). This assumption is based on the assumption that parties enjoy more or less equal bargaining power, there is near perfect competition in the market place and the parties genuinely negotiate the terms of their contracts.

Question 24

What are standard-form contracts?

Answer 24

These are characterised by their take-it-or-leave-it nature. They have standard terms that sellers are unwilling to deviate from.

Question 25

Is there a requirement of good faith in contract?

Answer 25

The idea that parties to a contract should behave honestly and fairly in their dealings with one another. The exceptio doli used to be defence, but nowadays judges are expected to incorporate an understanding of good faith into their judgments concerning the nature of a contract in dispute, so as to be congruent with the values of our constitutional community.

Question 26

What did Barkhuizen v Napier deal with, and what test did it lay out?

Answer 26

Dealt with a time limitation clause. The test for fairness in a contract:

1) was the clause itself manifestly unreasonable and inconsistent with public policy?
2) if reasonable, should it still be enforced in light of the circumstances that prevented compliance with the clause?

Question 27

What did Bredenkamp v Standard Bank hold?

Answer 27

The court held that refusing to enforce a contract because it is contrary to public policy is only relevant when dealing with constitutional rights.

Question 28

What did Everfresh v Shoprite deal with?

Answer 28

It dealt with an agreement to negotiate new terms. An agreement to agree. Did not hear the appeal because it was not in the interests of justice to do so.

Question 29

What was held in Botha v Rich

Answer 29

Because Ms Botha had paid more than half, she was entitled to transfer of the property. However, it would be unfair to allow her transfer of the house without the payment of her outstanding arrears. Hence, relying on the principles of good faith and reciprocity, the Court order that Ms Botha receive transfer of the property and in turn, she must register a bond over the property as required by Section 27 of the Act.

Question 30

What did Beadica 231 hold?

Answer 30

Option to renew a lease not taken. Eviction sought. The applicant solely relied on good faith and ubuntu. Judge Dennis Davis granted the applicants request, and held that the option to renew the lease had been taken. He denied the respondents request to evict the applicants.

Question 31

What was held in Mohamed’s Leisure?

Answer 31

A termination of the lease was not contrary to public policy. Hence, the property must be vacated.

Question 32

What is privity of contract?

Answer 32

The idea that a contract creates rights and duties only for the parties to the agreement, and not for third persons.

Question 33

What are the competing values in contract law?

Answer 33

Contracts must be fair. But, they must also be certain and precise. Every time a court enforces an unreasonably harsh contractual provision, a price is paid in terms of the ordinary persons sense of what justice requires; conversely, every time a court allows a party to escape liability under what was thought to be a binding contract, a price is paid in terms of legal and commercial certainty.

Question 34

What does the CPA do?

Answer 34

Essentially codifies the notion of good faith in contract. It is designed to protect the consumer in an era where standard-form contracts with massive corporations are entered into every day.

Question 35

How does the Constitution impact on the law of contract?

Answer 35

The Constitution applies indirectly to contract law. A prima facie neutral term in a contract will not be enforced if its enforcement will unjustifiably affect an identified constitutional value.