Theme 2 PT 2 Flashcards
PACTA DE CONTRAHENDO
1) A binding legal instrument under international law by which contracting parties assume legal obligations to conclude or negotiate future agreements
Exceptions to PACTA DE CONTRAHENDO
1) Option Contract
2) Preference Contract
Option
1) An agreement restricting an offeror’s right to revoke an offer
Preference contract:
1) An agreement where one person
binds himself to give preference to another should he/she conclude some other specific type of agreement
2) (right of first refusal or right of pre-emption)
PACTA DE CONTRAHENDO
OPTIONS
1) Agreement restricting an offeror’s right to revoke the offer
1.2) e.g. – to keep an offer open for a certain
period of time—renders the offer irrevocable for a time period (duration of option).]
2) Holder of option has power to bring contract into existence by the unilateral act of exercising the option i.e. by accepting the offer.
3) May be granted gratuitously or for some
consideration.
What can an offer be?
1) Exclusive right
2) Transferable to 3rd parties.
Option has two (2) parts:
1) Main offer –offer to enter into the main
agreement
1.2) e.g. sale, lease, employment etc
2) Ancillary offer –agreement to keep main
offer open for a certain time.
What is an option?
1) An offer coupled with a stipulated
period of time during which the offeror is not free to revoke it.
2) A makes an offer to B and gives a stipulated time
within which he must accept to it.
3) A also is not allowed to make the same offer to C within the same period.
For an option, there will be two contracts/conditions
to be observed
1) That of time
2)That of not having
made the same offer to another third party.
TRANSFERABILITY OF AN OPTION:
1) GR: Transferrable through cession.
2) Exceptions: Prohibited in the option (Express/Implied)/
3) Option is personal to the Offeree
Whether identity of Offeree is of any important to
Offeror:
1) Hersch v Nel 1948 (3) SA 686 (A) at 695:
▪2) Credit sale vs Cash sale.
EFFECT OF AN OPTION:
1) Renders offer irrevocable.
2) Attempt to revoke = Breach—also has no force or effect as the offer will remain open.
DURATION OF AN OPTION:
1) GR: Option should specify the time within which the option must be exercised.
2) Failure to exercise option in the given time –automatic termination of option.
3) If option does not stipulate a time period—offer must be kept open for a reasonable time.
4) Death of either party will NOT terminate option unless contract stipulates otherwise (express or implied).
5) If option is personal to the grantee (Can’t be transferred) – offer will terminate on death of either party
FORMALITIES:
▪ Mokone v Tassos Properties (CC):
1) Preference contract need not comply with the
formalities required for the main agreement.
2) Deed of alienation: Alienation of Land Act.
3) NB: Accepted that the same principles also apply to options.
Is breach a material breach? (e.g. Offeror attempts
to revoke the option)
1) Yes= innocent party has choice to cancel or uphold contract.
2) Cancellation = contract is terminated =entitled to restitution for any performance made.
3) Uphold = innocent party entitled to specific performance.
4) Cancellation/uphold = innocent party entitle to claim for damages.
5) Damages- seek to place innocent party in the financial position that he/she would have occupied had the breach not occurred
The right of pre-emption/ pre-emptive right:
1) Grantor of pre-emptive right is under no obligation to sell property, the grantee merely acquires the preferential right to buy
if/when grantor decides to sell.
OBLIGATIONS OF THE GRANTOR:
1) The grantee has the correlative right against the grantor that he should not sell.
2) Trigger event in pre-emption agreement.
3) Offer must be bona fide.
Grantee has the correlative legal right against the grantor that he should not sell:
Soteriou v Retco Poyntons
1) The grantor of such a right cannot be compelled to sell the property concerned.
2)But if he does sell, he is obliged to give the grantee the preference of purchasing, and consequently he is prevented from selling to a third person without giving the first refusal.
3) A right of pre-emption involves a negative
contract (duty) not to sell the property to a third person without giving the grantee the first refusal
4)The grantee has the correlative legal right
against the grantor that he should not sell.
5) This is a right which is enforceable by appropriate remedies
TRIGGER EVENT IN PRE-EMPTION AGREEMENT:
1.1) Grantor - Negative obligation – arises as soon as the pre-emptive agreement is concluded.
1.2) ‘Not to sell’
2.1) Grantor- positive obligation conditional on happening of a trigger event.
2.2) ‘To make the first offer to holder of the right of pre-emption.’
OFFER MUST BE BONA FIDE:
1.1) Offer made by offeror must be made in good faith.
1.2) Cannot avoid pre-emption agreement by making an unreasonable offer.
Examples OF BONA FIDE OFFERS
1)If terms stipulated – offer must abide by those terms.
2) If willing to sell to 3rd party –offer to holder of preemptive right must be on the same terms.
3) Generally – use objective criteria e.g. market value.
DURATION OF OFFER:
1) Offer must be kept open for a reasonable period.
2) Good faith
3) Wissekerke Case : If grantor makes an offer to the grantee
- then genuinely changes his/her mind about selling the property
—grantor may withdraw the offer.
REMEDIES:
1) Usual civil remedies as discussed previously (Interdict?), but also, The oryx
mechanism.
2) Associated SA Bakeries
