Law of Contract Notes

The Law of Contract
Formation of a valid contract
Consensus ad idem (‘meeting of minds’)

Definition of a contract:
“[A]n agreement between two or more parties which
creates legally binding and enforceable rights and duties
between them.”
[Basic Principles of Business Law 2006: 52]
Waheeda Amien, 2010 1

Binding vs non-binding contract
Constituent elements of contract:
Offer
Acceptance

Contractual capacity = legally competent
Those who lack / have ltd contractual capacity:
Minors
Persons married in community of property
Insolvency
Mental incapacity
Minors
Unmarried + under age of 18 years
No / ltd contractual capacity (CC)
Under seven years = no CC
Between seven + 18 need parental assistance =

ltd CC
Assisted contracts vs unassisted contracts

Assisted contracts
Children born outside wedlock
Consent of mother required unless:

o father was in permanent life partnership with
mother at the time of child’s birth; or
o father acknowledged child + contributed to child’s

maintenance

Assisted contracts
Parental consent = express / tacit
Factors indicating tacit emancipation:
age
living arrangements
relationship between minor + parents

Assisted contracts
Minors can escape liability if:
contract was induced by misrepresentation,

duress or undue influence;
other party committed material breach of

contract; or
contract is inherently prejudicial

Assisted contracts
Remedy if contract is inherently prejudicial =

restitution in integrum
to restore status quo ante

Unassisted contracts
Limping contract
Election of minor’s parents to ratify / repudiate

contract
Repudiation of contract by minor within three

years of attaining majority

Married Persons
Married in community of property
Ltd CC
Sale / mortgage of immovable property
Sale of shares, stocks + bonds
Sale of household furniture
Contracts with less onerous implications

Insolvency
Ltd CC
Insolvent estate administered by trustee
Contract without trustee’s permission = voidable
at election of trustee

Mental incapacity arising from mental
illness or intoxication
No CC
Contract = void
Presumption that every person is of sound mind

and has necessary CC must be disproved

Agreement / Consensus
Offer = proposal by person making the offer

(offeror makes proposal to offeree)
Acceptance = assent by offeree to the terms

contained in the offer
Valid contract = valid offer + valid

acceptance
Requirements for valid offer
Offer must be:
1. Complete, clear + unambiguous
2. Made with intention of creating legally binding

obligations
3. In existence at the time that it is accepted

Offer must be complete, clear +
unambiguous
Offer must contain all material terms on which

offeror wishes to contract
Otherwise, contract = void for vagueness

Offer must be made with intention of
creating legally binding obligations
Following proposals are not valid offers:
Offers made in jest

Social arrangements
Gentleman’s agreements
Most advertisements (except offers for reward)

Offer must be made with intention of
creating legally binding obligations
To determine if proposal is not made with

intention to create legally binding obligations,
court will consider:
Surrounding circumstances
Precise details of proposal; and
How a reasonable person would have
interpreted the proposal

Offer must be in existence at the time
that it is accepted
Offer ceases to exist when it is:

Rejected by offeree
(outright or with counter-offer)
Revoked / withdrawn by offeror
Lapsed (in terms of stipulated time period /
after reasonable time)

Requirements for valid acceptance
Acceptance must be:
1. Made by person to whom offer was addressed

2. Made deliberately / consciously
3. Clear, unambiguous + unconditional
4. Corresponding with the terms of the offer
5. Communicated to the offeror

Acceptance must be made by person to
whom offer was actually addressed
Bird v Summerville and another
1961 (3) SA 194 (A)

Acceptance must be made deliberately /
consciously
Offeree must know of existence of offer when
purporting to accept it

Acceptance must be clear, unambiguous
+ unconditional
A offers to give B the option to buy / sell various

properties for R100 000. B accepts the offer to buy /
sell the properties for R100 000.
A offers to sell her car to B for R30 000. B accepts the

offer on the condition that the car passes a roadworthy
test.
Silence constitutes acceptance where there is a duty on

the offeree to reject the offer expressly.

Terms of acceptance must correspond
with the terms of the offer
Mirror image of each other
Variation of terms = rejection + counter-offer
Incomplete / partial acceptance

Acceptance must have been
communicated to the offeror
Offeror must receive acceptance
Exceptions to above rule:
When need for acceptance is dispensed with

When offeree is instructed to communicate
acceptance but cannot through no fault of her own
When offeree is instructed to give notice of
acceptance but offeror makes it impossible for that
to happen

Options
Contract where grantor undertakes to keep

offer open to grantee for specified period of
time
Involves two offers:

Main offer
Option offer
May be ceded

Remedies for breach of option
Interdict + damages for losses; or
Damages to place yourself in position you

would have been in had option not been agreed
upon; or
Damages to place yourself in position had

breach not occurred

Right of first refusal
Grantor agrees that should she decide to enter
into a contract, she will offer contract to grantee
or accept offer by grantee before contracting
with anyone else.

Remedies for breach of right of first
refusal
Damages; or
Unilateral declaration of intent; or
Interdict

Online contracting (electronic commerce)
Electronic Communications and Transactions

Act 25 of 2002 (ECT Act)
Regulation of Interception of Communications

and Provision of Communication-related
Information Act 36 of 2006 (RIC Act)

Online contracting (electronic commerce)
Advanced electronic signature
Automated transactions … make use of an

electronic agent
Click-wrap agreements
Browse-wrap agreements

Click-wrap agreements
Click on:
□ “I agree”
□ “I agree to be bound by the terms and

conditions”

Browse-wrap agreements
“the use of this website is subject to our standard
terms and conditions”
S11(3) ECT Act: reasonable person
Common law – standard type contracts

Supplier obliged to disclose following
information for electronic transactions:
1. Supplier’s full name + legal status

2. Supplier’s physical address + telephone no
3. Supplier’s website + email addresses
4. Membership of any self-regulatory / accreditation body
to which supplier belongs + contact details of that body
5. Code of conduct to which supplier subscribes + how to
access it electronically
6. Supplier’s registration numbers, names of its office
bearers + place of registration
7. Physical address where supplier will receive legal
service of documents
8. Description of goods + services offered to enable the
consumer to make an informed decision
9. Full price of goods / services, including transport, taxes
+ other fees / costs
10. Manner of payment
11. Any terms of agreement, including guarantees that will
apply to the transaction and how those terms may be
accessed, stored + reproduced electronically by
consumers
12. Time within which the goods will be dispatched /
delivered / within which the services will be rendered

13. Manner + period within which consumers can access +
maintain a full record of the transaction
14. Return, exchange + refund policy of the supplier
15. Any alternative dispute resolution code to which the
supplier subscribes + how it may be accessed by the
consumer
16. Security procedures + privacy policy of the supplier in
respect of payment, payment information + personal
information
17. Minimum duration of the agreement in the case of
agreements for the supply of products / services to be
performed on an ongoing basis
18. Rights of consumers in respect of the cooling off
period, where applicable.
Supplier obliged to enable consumer to:
Review the contract;
Correct any errors; and
Withdraw prior to finalising the contract
Failing which, consumer may cancel contract within 14

days of receiving goods / services

Further obligations of supplier:
Supplier must execute order placed within 30 days of

receiving the order, failing which, consumer may cancel
contract within 7 days by written notice
Supplier must utilise secure payment system, failing which

consumer can sue for damages
Provide consumer with the opportunity to unsubscribe from a

mailing list
If requested, supplier must provide details of where + how

consumer’s personal information was obtained
Cooling off period
Automatic right of consumer to cancel contract

within seven days of receipt of goods / services
Available if consumer cannot rely on breach of

18 disclosure rules / cannot access three
entitlements of consumers

Cooling off period does not apply to:
Financial services
Auctions
Foodstuffs + beverages for everyday use
Customised goods
Goods / services where the price depends on market
fluctuations
Newspapers, books + periodicals
Audio, video / software products that have been unsealed
Gambling
Accommodation, transport, catering + leisure services for a
specified date / time period

Factors that can taint / prevent the
conclusion of a valid contract
1. Mistake (void contract)
2. Misrepresentation (voidable contract)
3. Duress / undue influence (voidable contract)

Mistake
Common mistake
Unilateral mistake
Mutual mistake

Material mistake
Nature of the contract
Subject matter of the contract
When the identity of the other party matters

Mistake is not material if it relates to:
Quality / characteristic of the subject matter
Party’s motives
When identity of other party is not relevant to

the party’s ability to perform

Reasonable mistake (iustus error)
Reasonable reliance
Caveat subscriptor

Misrepresentation
Expressly
Conduct
Silence where there is a duty to disclose
information

Misrepresentation
Causal
Incidental
Fraudulent
Negligent
Innocent
Distinguish misrepresentation from:
Warranty
Statement of opinion
Puff

Relationship between misrepresentation
and mistake
If mistake is material = contract will be void for

mistake
If mistake is not material = contract could be

voidable on the basis of misrepresentation

Duress
Where one party threatens, coerces /
intimidates another to enter into a contract
Undue influence
Persuasion is subtle

Legality
Contracts that are:
illegal;
immoral / contrary to public policy; and/or
legally impossible
= invalid + unenforceable

Statutory illegality
Act of parliament
Absolute prohibition
Relative prohibition
Void contract depending on intention of
Parliament

Common law illegality
Void because contra bonos mores
/ contrary to public policy

Effects of contracts that are void for
Illegality
Unenforceable
Nullity
Restitution if one party is not equally guilty or if

in the interests of justice

Severing invalid terms
If invalid terms are capable of being severed =

contract remains valid
Subsidiary?
Integral?
Consider purpose of contract + whether
purpose can be achieved in absence of invalid
terms

Contracts in restraint of trade
Self-standing
Form part of existing contract
Magna Alloys and Research (SA) (Pty) Ltd v Ellis

1984 (4) SA 874 (A)

Possibility of performance
Objectively impossible = void

Physical / legal
Casus fortuitus
Vis maior
Initial + supervening impossibility

Formalities
Sale of immovable property + credit agreements:

Writing
Signed by both parties
Failing above: contract for immovable property = void

credit agreement = valid but criminal

Formalities
Ante-nuptial contracts:
Writing
Signed by both parties
Notary public
Registration in deeds office within three months of
marriage
Failing above: ANC = valid but marriage in community

of property

Contents of a contract
Terms
Express
Implied
= Both give rise to rights + obligations
Clauses
Provisions that do not give rise to rights +
obligations

Express terms
Articulated verbally or in writing

Standard type contracts
Caveat subscriptor rule
Unsigned documents e.g. tickets, notices
Exclusionary / exemption / disclaimer clauses

Exclusionary / exemption / disclaimer
clauses
Central South African Railways v McLaren

1903 TS 727
Durban’s Water Wonderland (Pty) v Botha

1999 (1) SA 982 (SCA)

Implied terms
Residual terms / naturalia

(implied by operation of law)
Tacit terms (implied by fact)
Implied by trade usage

Apply to contracts of sale, lease, agency etc.
Regulated by particular body of law
Do not apply to franchise + distribution

agreements

Examples:
A buyer in a contract of sale is obliged to pay the

purchase price even though the goods were damaged /
destroyed while in the possession + under the control
of the seller, provided the seller is not to blame for the
damage / destruction of the goods.
A lessee in a contract of lease only needs to pay the

rental in arrear (at the end of the lease period) rather
than at the beginning of the lease period.

Tacit terms
Parties’ intention
‘Curious bystander’ test
West Witwatersrand Areas v Roos 1936 AD 62
Voigt Ltd v South African Railways 1933 CPD 4

Terms implied by trade usage
Customs of particular trades / industries
Coutts v Jacobs 1927 EDL 120
Usage must:
be generally known within trade or industry;

be clear;
be reasonable; +
not conflict with common law + statutory law

MEMORANDUM OF AGREEMENT
entered into between:
Shalin Naidu of 25 Ernest Road, Rylands Estate (hereinafter called ‘the seller’)
and
Raeesa Suliman of 12 High Level Road, Sea Point (hereinafter called ‘the purchaser’)
WHEREBY IT IS AGREED AS FOLLOWS:
1. Sale and purchase

The seller hereby sells to the purchaser who hereby purchases the seller’s 1996 Toyota Tazz
(hereinafter referred to as ‘the Goods’).
2. Price
The purchase price for the Goods shall be the sum of R50 000.00 (Fifty thousand rand).
Signed by the seller at Rylands Estate this 1st day of March 2008.
Shalin Naidu
-------------------------------
Signed by the purchaser at Rylands Estate this 1st day of March 2008.
Raeesa Suliman
-------------------------------

Common contractual terms
Conditions
Time terms
Warranties
Exclusionary / exemption / disclaimer clauses
Cancellation clauses
Penalty clauses
No variation clauses

Conditions
A condition is a provision in a contract which
“makes the operation, or continued operation, of

the whole or part of the contract dependent on
the happening of an uncertain future event.”

Conditions
Not terms
Suspensive
Resolutive
Question is whether / not stipulated event / undertaking

will happen

Suspensive conditions
Example: Condition in a contract of sale of

immovable property
“This agreement is subject to the condition that

the Purchaser’s application for a loan be
approved by 20 June 2010, upon the security
of a mortgage bond over the property, by a
Financial Institution, for the sum of R1 million.”

Resolutive conditions
Example: Condition in a divorce agreement
“I, the husband, undertake to pay my former
wife maintenance until she remarries or dies.”

Time terms
Examples:
I will pay you R1 million on 01 December 2008
I will pay you R1 million when you die
Question is when stipulated event will happen

Warranties
Express confirmation of the truth of a particular fact in

the contract
Forms part of the contract
Breach of warranty = breach of contract
Distinguish between warranty + misrepresentation:
Petit v Abramson (II) 1946 NPD 673

Exclusionary / exemption / disclaimer
clauses
Courts interpret restrictively
Barnard v Protea Assurance Co Ltd t/a Pretoria

Assurance 1998 (3) SA 1063 (C)

Cancellation clauses
Parties give themselves the right to cancel a contract

for non-material breaches
Example: Clause in lease agreement
“If the monthly rental or other amounts due in terms of

this lease are not paid on due date or if the tenant
commits any other breach of this lease, the landlord
shall be entitled to cancel this lease.”

Penalty clauses
Example: Clause in building contract
“The contractor / builder shall be liable to pay a

penalty of R500 per day to the client for the
number of days the work remains incomplete
beyond 01 June 2010.”

No variation clauses
Example:
“No variation to the contract will be of any force

and effect unless the variation has been
reduced to writing and signed by both parties.”

Disagreement on terms of a contract
Could arise when terms of the written contract

are ambiguous / does not accurately reflect the
parties’ prior negotiations
Legal principles to assist:

Parol evidence rule
Rectification

Parol evidence rule
Forms part of the law of evidence

Court must only consider written document
No oral evidence allowed
Exceptions to above:
Where agreement is partly verbal + partly written
Where written terms are vague / incomplete /
ambiguous

Rectification
Application to court to rectify written contract
Applicant bears the onus of proving that the

document is inaccurate + how it should be
corrected to accurately reflect the parties’
agreement

Breach of contract
Types of breaches
1. Mora debitoris
2. Mora creditoris
3. Repudiation
4. Positive malperformance
5. Prevention of performance

Mora debitoris
“Delay, without lawful excuse, of performance of a

contractual duty; in other words mora is wrongful
failure to perform timeously.”
Breach of a time term by the debtor
Two elements:
Performance must be due + possible

Obligation must be enforceable

Mora creditoris
“Delay (or refusal) on the part of the creditor to render

such assistance as the law requires of him in co-
operating with the debtor to enable him (the debtor)
to perform.”
Breach of a time term by the creditor
Two elements:
Performance is due
Debtor tenders proper performance
Repudiation
Rejection of contractual obligations
Examples:
1. Seller informs purchaser she has decided to keep

the goods
2. Employee fails to report for duty and starts

employment elsewhere
Anticipatory breach
Repudiation
Typical expressions:
“I will not”
“I would like to but I cannot”
“Please cancel the order”

Positive Malperformance
Defective performance
Two types:
a) Incomplete / defective (substandard)
b) Where debtor does something that the

contract prohibits her from doing

Prevention of performance
Impossibility caused by a party to the contract
Scenario 1:
Performance is not possible as a result of the

actions of the debtor e.g. debtor is a chauffeur
and she loses her driver’s licence as a result of
a drunk driving conviction

Scenario 2:
Performance by the debtor is prevented by the

actions of the creditor e.g. chauffeur (debtor)
tenders performance (arrives at work) but her
employer destroys the vehicle that she is
required to drive.

Remedies for breach of contract
Declaration of rights
Specific performance
Cancellation
Damages

Declaration of rights
High Court application
To obtain clarity regarding obligations and

rights under a contract

Mandatory interdict
Prohibitory interdict
Requirements for interdict:
Clear right
Injury / well founded fear that injury will be
committed
No other remedy exists

Court has discretion to grant order:
Haynes v King William’s Town Municipality
1951 (2) SA 371 (A)

Exceptio non adimpleti contractus:
Motor Racing Enterprises (Pty) Ltd (in liquidation) v

NPS (Electronics) Ltd
1996 (4) SA 950 (A)
BK Tooling (Edms) Bpk v Scope Precision Engineering

(Edms) Bpk 1979 (1) SA 391 (A)

Cancellation
Election to cancel
Material / fundamental breach
Cancellation clause

Cancellation
Material / fundamental breach
“‘goes to the root of the contract’, or affects a ‘vital part’ of

the obligations or means that there is no ‘substantial
performance’. It amounts to saying that the breach
must be so serious that it cannot reasonably be
expected of the other party that he should continue with
the contract and content himself with an eventual claim
for damages.”
(Swartz & Son (Pty) Ltd v Wolmaransstad Town
Council 1960 (2) SA 1 (T) at 4)

Cancellation
Material / fundamental breach applies to:
Repudiation
Positive malperformance
Mora debitoris + mora creditoris

Damages
Distinguish between damages in contract +

damages in delict:
“A litigant who sues on contract sues to have his bargain or

its equivalent in money or in money and kind. The
litigant who sues on delict sues to recover the loss
which he has sustained because of the wrongful
conduct of another, in other words that the amount by
which his patrimony has been diminished by such
conduct should be restored by him.”
(Trotman & Another v Edwick 1951 (1) SA 443 (A) at
449B-C)

Variation of contract
Must follow the same formalities as for the

conclusion of the contract
E.g. Alienation of Land Act 68 of 1981
Non-variation clause may require variation of

contractual terms to be in writing

Transfer of contractual terms +
obligations
Cession = rights
Delegation = obligations
Assignment = rights + obligations

Cession of rights
Dr Cr 1
Cedent (Cr 1) Cr 2 (Cessionary)
Dr Cessionary
Example 1: lease agreement

Example 2: future book debts

Cession
Prohibition against cession of rights in:
Compensation for Occupational Injuries and

Diseases Act 130 of 1993
Statutory Pensions Protection Act 21 of 1962
Insolvency Act 24 of 1936

Cession
Debtor’s consent not required unless s/he has

substantial interest in the identity of the
creditor
i.e. when the identity of the creditor makes a

reasonable or substantial difference to the
debtor.

Cession
Labour Relations Act: sale of business as a

going concern
Paiges v Van Ryn Gold Mines Estate Ltd 1920

AD 600

Delegation of obligations
Novation
Creditor’s consent required
E.g. lease agreement
Dr Cr 1
3rd party

Assignment of rights + obligations
Novation
Dr / Cr Dr / Cr
E.g. lease agreement
Consent required

Termination of contractual obligations
1. Proper performance
2. Agreement
3. Cancellation
4. Death
5. Failure of creditor to perform
6. Insolvency
7. Merger
8. Novation
9. Prescription
10. Set-off
11. Supervening impossibility of performance

Proper performance
a) Perform at the agreed place + time
i. Identity of the parties

ii. Performance must follow the manner
agreed upon
b) Payment in cash + by cheque

Agreement
Waiver
Novation
Compromise

Prescription
Defence for debtor
Prescription Act 68 of 1969
Three (3) years for most types of debts
Delay of prescription
Interruption of prescription

Set-off
1. Indebtedness in the same capacities
2. Debts must be due + payable
3. Debts must be of the same type and liquidated

Supervening impossibility of
Performance
Vis maior + casus fortuitus
Peters Flamman & Co v Kokstad

Municipality 1919 AD 427
Benjamin v Myers 1946 CPD 655

Law of Contract Notes

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The Law of Contract

Formation of a valid contract

Consensus ad idem (‘meeting of minds’)

[Basic Principles of Business Law 2006: 52]

Waheeda Amien, 2010 1

Binding vs non-binding contract

Constituent elements of contract:

Waheeda Amien, 2010 2

Contractual capacity = legally competent

Those who lack / have ltd contractual capacity:

Persons married in community of property

Unmarried + under age of 18 years

No / ltd contractual capacity (CC)

Under seven years = no CC

Between seven + 18 need parental assistance =

Assisted contracts vs unassisted contracts

Waheeda Amien, 2010 4

Children born outside wedlock

Consent of mother required unless:

o father acknowledged child + contributed to child’s

Waheeda Amien, 2010 5

Parental consent = express / tacit

Factors indicating tacit emancipation:

relationship between minor + parents

Waheeda Amien, 2010 6

Minors can escape liability if:

contract was induced by misrepresentation,

other party committed material breach of

contract is inherently prejudicial

Waheeda Amien, 2010 7

Remedy if contract is inherently prejudicial =

to restore status quo ante

Waheeda Amien, 2010 8

Election of minor’s parents to ratify / repudiate

Repudiation of contract by minor within three

Waheeda Amien, 2010 9

Married in community of property

Sale / mortgage of immovable property

Sale of shares, stocks + bonds

Sale of household furniture

Contracts with less onerous implications

Waheeda Amien, 2010 10

Insolvent estate administered by trustee

Contract without trustee’s permission = voidable

Waheeda Amien, 2010 11

Presumption that every person is of sound mind

Waheeda Amien, 2010 12

Offer = proposal by person making the offer

Acceptance = assent by offeree to the terms

Valid contract = valid offer + valid

Offer must be:

1. Complete, clear + unambiguous

2. Made with intention of creating legally binding

3. In existence at the time that it is accepted

Waheeda Amien, 2010 14

Offer must contain all material terms on which

Otherwise, contract = void for vagueness

Waheeda Amien, 2010 15

Following proposals are not valid offers:

Offers made in jest

Waheeda Amien, 2010 16

To determine if proposal is not made with