LU1

• LAW OF CONTRACT 2024
• LEARNING UNIT 1: THE NATURE & BASIS OF CONTRACT
• THEME 1: THE NOTION OF CONTRACT
• LEARNING OUTCOMES


  • LO1: Differentiate between the notion of a contract and other legally binding agreements
  • LO2: Explain the requirements and the key characteristics of a valid contract
  • LO3: Compare the Law of Contract to other branches of the Law of Obligations
  • LO4: Set out the historical development of the modern contract
  • LO5: Discuss the impact of the Constitution on the South African Law of Contract (with reference to the prescribed articles)
  • LO6: Explain the basis and dual basis of a contract in modern law
  • LO7: Explain the cornerstones of contract which include, freedom of contract, sanctity of contract, good faith and privity of contract
  • LO8: Discuss the interplay between the competing values
  • LO9: Discuss the interaction between the Common Law of contract, the Consumer Protection Act 68 of 2008 and the Constitution in analysing the validity of a contractual term
• Contract


  An agreement entered into by 2 or more persons with the intention of creating a legal obligation/s
• Contract


  • The agreement should be one the law recognises as being binding on the parties
• Requirements & key characteristics of a valid contract


  • Consensus
  • Capacity
  • Formalities
  • Legality
  • Possibility
  • Certainty
• Obligation


  A Legal Bond [vinculum iuris] between 2 or more persons obliging one[debtor] to do or refrain from doing something for the other [creditor]
• Contract


  Voluntarily assumed by parties
• Delict


  Imposed by law - irrespective of parties will
• Contract & Delict


  Close similarity: both are civil wrongs, giving rise to a duty to pay damages
• Unjustified enrichment


  Shift of wealth from one person's estate to another's without good legal ground/cause for such a shift
• SA law is a modernised version of Roman-Dutch law of contract

  
• Our modern notion of contract differs from early Roman Law
• The impact of the Constitution on the SA Law of Contract is discussed in the prescribed articles
• Actual subjective agreement


  A genuine agreement presupposes an actual meeting of minds [concursus animorum]
• Apparent/Objective agreement


  There is always uncertainty as to the true intention & expressed/perceived intention
• Contracts presupposed to be on agreement therefore NO contract if there is dissensus [lack of meeting of minds]
• Even though no actual agreement, there can be an objective appearance of agreement through the conduct of 1 party which the other has relied upon
• Consensus


  This process is analysed in terms of offer & acceptance
• Process of contract formation


  1. Parties declare their intent

  2. Declaration must be expressed in words, conduct [some cases silence]
• Apparent/Objective Agreement


  In practice, there is always uncertainty as to the true intention & expressed/perceived intention
• Reasons for uncertainty


  • Hidden mental reservation of a party
  • Misunderstanding/mistake
• Dissensus (lack of meeting of minds) rather than consensus results from the uncertainty
• If there is no actual agreement, a contract can still come into existence through the objective appearance of agreement through the conduct of one party which the other has relied upon
• Theories of Contract


  • Will Theory
  • Declaration Theory
  • Reliance Theory
• Will Theory


  The basis of contract is the individual will of the parties. Parties bound by contract because they have chosen to be bound.
• Declaration Theory


  The inner wills of the parties is irrelevant. What is important is not what the parties think but they say or do (conduct) - the external manifestation of their will. Therefore the true basis for contract is found in the concurring declaration of parties.
• Reliance Theory


  The basis of contract to be in detrimental reliance on the appearance of the agreement i.e. the reasonable belief in the existence of consensus induced by the conduct of the other party.
• In modern SA law, the dual basis of contract is consensus and reasonable reliance
• Consensus


  The primary basis to determine if a contract is formed - did the parties' minds meet?
• Reasonable Reliance


  If no consensus, the enquiry goes further to look at whether one party by words/conduct led the other into a reasonable belief that consensus was reached. If so, contract is upheld on this basis.
• Cornerstones of Contract


  • Freedom of Contract
  • Sanctity of Contract
  • Good Faith
  • Privity of Contract
• The goal of Contract Law is for parties to keep their promises (honour & morality) and provide a legal framework to transact provided it is done honestly & fairly, following the right procedures - the Law will uphold the Agreement & enforce it.
• Contracts require a time lapse between undertaking of performance & obligations, which requires degrees of trust which is insufficient. If a party defaults, the other party can hold them to the Agreement in terms of Law and get compensation for promises broken.
• Freedom of Contract


  Parties are free to decide whether to contract, with whom to contract, and what the terms & conditions will be.
• Sanctity of Contract


  Contracts entered into freely & seriously must be honoured.
• Good Faith


  Parties must behave honestly & fairly.
• Privity of Contract


  Rights & duties created for parties - not third parties.
• The classic model of contract assumes freedom & autonomy of parties, minimal state intervention, preference for clear & certain rules, self-interested individualism, assumed fairness of the exchange, and a discrete event. But this assumption is incorrect as there is often inequality of bargaining power and parties accept standard terms & conditions.