Introduction to the Law of Contract Study Units 3 and 4 Introduction to the Law of Contract

What is a contract?

Definition An agreement that creates a legally enforceable obligation

The concept of “obligatio” Obligatio (obligation) is the legal relationship that exists when parties to an agreement acquire personal rights against each other Duty to perform Right to receive performance

Discussion All contracts are agreements but not all agreements are contracts

The Requirements of a Valid Contract Consensus Contractual capacity Legal possibility of performance Physical possibility of performance Formalities

Freedom of Contract People free to choose with whom and on what grounds they contract with one another Generally all agreements lawful unless prohibited by statute or common law Contra bones mores

Contracting electronically Electronic Communications & Transactions Act 25 of 2002 Allows for electronic contracting Reception theory – time & place when offeror receives acceptance Signature Required by law – advanced electronic signature Required by parties – email/normal

Consensus Each party must have a serious intention to be bound to the contract Common intention Must make intention known to the other party

Intention to Contract Serious intent to contract A “ meeting of the minds” A reasonable and serious promise An offer as opposed to an invitation to make an offer or a statement of intent to do business

Communication of the Intention Can be verbal or in writing or by conduct (implied/tacit agreement)

Offer & Acceptance Offer Consistent with essentials of contract Must be communicated By offeror to offeree Must contain/define all material terms Can I accept by saying “ yes”?

Offer & Acceptance Revocation Lapsing Rejection Request for information Counter-offer Options

Offer & Acceptance Acceptance Must be consistent with contract Offeree must have capacity & intend to contract Acceptance must be communicated Acceptance must be unconditional Acceptance must be in prescribed manner

Contents of a contract A contract consists of terms that are either specifically agreed on by the parties and expressed in the contract and terms that are implied by law (and therefore automatically included)

Essential, residual & incidental terms Essentialia (essential terms) Those terms that are essential to a paryticular type of contract; eg: the thing sold & the price are essentials in a contract of sale Naturalia (residual terms) Those terms that are automatically implied by law; eg: warranty against latent defects in contract of sale Incidentalia (incidental terms) Those terms added by the parties or changes to residual terms; eg: that delivery will only take place 30 days after payment

Express terms Those issues specifically discussed & agreed upon by the parties during negotiations Agreed orally or in writing Can be included in a notice or a ticket for example

Ticket example

Tacit (implied) terms These terms are inferred from the surrounding circumstances Is the term necessary to give effect to the parties intention – if so the Courts will read it into the contract even if the parties did not think about it Common law rules may apply to something Terms implied by trade usage Statutory terms

Certainty of Terms Must not be so vague as to be uncertain Causes of uncertainty Unlimited options Vague language creates uncertainty No actual contract Unspecified factual details Rules of Interpretation Plain ordinary meaning of words Ambiguity interpreted in context of whole agreement

Parties of the Same Mind Mistake or error Unilateral mistake – one of the parties misunderstands a specific aspect of the contract while the other party is aware of the true facts Common mistake – both parties misunderstand the same term, fact or aspect of the contract Mutual mistake – both parties misunderstand different terms or aspects of the contract

Conditions A condition is a type of term “which qualifies the operation of a contractual obligation in such a way that it is dependent on the taking place of an uncertain future event” Vrancken et al, 2002 (67) It is not certain when or if the event will take place Two types of condition

Suspensive Condition The operation of the obligation (performance of rights & duties) is suspended or delayed until the uncertain future event (condition) takes place Eg: A agrees to employ B if she graduates at the end of the year

Resolutive Condition The obligation comes into operation immediately (performance takes place) but if the uncertain future event (condition) is fulfilled the obligation will immediately terminate Eg: A agrees that B may use his car until he finds employment. Once B is employed he must hand back the car to A

Mistake Only a mistake of fact can cause contract to be void Mistake of fact can relate to nature of contract, identity of subject matter, attributes of subject matter or identity of parties Can be a common, unilateral or mutual mistake Common mistake must be material Mutual or unilateral mistake must be material & reasonable

Void vs Voidable Void – contract does not come into being because of some fatal flaw Voidable – contract comes into being and is valid and enforceable until set aside by court because of some flaw

Duress Duress – unlawful threat of harm or injury causing other party to enter into contract Voidable if: Actual or reasonable fear of physical violence or damage Imminent or inevitable Unlawful By one party against another Causes party to contract

Misrepresentation Misrepresentation – contract voidable if: Untrue statement regarding existing fact or condition Made by one party to the other Misrepresentation must be unlawful Misrepresentation must have induced (caused) the contract Can be intentional, negligently or innocent

Lack of consensus Undue Influence – improper or unfair conduct by a party to persuade other party to contract against their free will Voidable if: One party exercises influence over another Influence used to weaken will / resistance Influence used to persuade other party to contract against own free will & to their disadvantage

Resolutive Condition The obligation comes into operation immediately (performance takes place) but if the uncertain future event (condition) is fulfilled the obligation will immediately terminate Eg: A agrees that B may use his car until he finds employment. Once B is employed he must hand back the car to A

Special circumstances Invitations to make an offer (advert) Statements of intent Calling for tenders Auctions

Time & place of contracting When parties in each others presence Information theory Contract comes into being at the time acceptance communicated and at the place where parties are

Time & place of contracting Where parties not in each others presence By telephone – Information theory applies – contract comes into being at time & place when offeror becomes aware of offeree’s acceptance By post – Expedition theory – contract comes into being at time & place when offeree posts letter of acceptance