Chapter 3: General principles of a contract

3.1. Introduction
Legal rules and principles regulate the creation/formation and exaction/performance
of binding relationship (commercial) between parties (legal subjects). The relationship
created by consenting parties is largely underpinned by common law principle of
freedom to contract, that is, there is a responsibility to those who create legally binding
relationships. The law of contract as these legal rules and principles are known has
evolved over centuries. Contracts are at the heart of every business transaction.
Businesspeople are contract people. Every day we enter into many contracts
subconsciously. We purchase – acquire goods and services. We sale- dispose of things.
We hire services. We render services. In all cases we have to negotiate and then agree to
do or not to do one thing or another. In our case, we form engineering projects through
contracting.

Contract defined

CONTRACTS- the term originated from old French contract (Modern French contrat),
from Latin contractus meaning "a drawing together, a shrinking; a contract, an
agreement," from past participle of contrahere meaning "to draw several objects
together; draw in, shorten, lessen, abridge," metaphorically "make a bargain, make an
agreement," from assimilated form of com "with, together" (see con-) + trahere "to draw"
(see tract ).
 A contract can be defined as a lawful agreement between 2 or more
parties who are capable of entering into such agreement and with serious
intentions to create a legally binding relationship.
 Can also be defined to mean an agreement entered into between 2 or more
persons with intention of creating a legal obligation.
In all these cases there is an agreement
The law must be able to recognise such an agreement as binding between the parties. To
be valid, the agreement must be legally binding between the parties and ordinarily
capable of being enforced in a court of law.
‘ALL CONTRACTS ARE AGREEMENTS BUT NOT ALL AGREEMENTS ARE
CONTRACTS’

Nature of a contract

A contract creates obligations under private as opposed to those under public law.
These private law obligations arise from voluntary or willingness of the party to be
bound and create such obligations. Public law obligations however, are not necessarily
a result of parties’ voluntariness but are rather imposed by law.
 X, a victim of crime, complains to police. Police investigates and should they feel
appropriate, hands over case to prosecution for prosecution of offender.
 Y, wishes to complain of failure by Z to do as they agreed (breach), MUST
enforce his/her rights in court without the assistance of public authorities.

Elements for contractual validity

From the definitions presented above, the following can be extracted elements
(constituent parts) of a contract;

1. Agreement/consesus

There must be an AGREEMENT between the parties. Parties must consent to create a
legally binding relationship. The element of agreement is evidenced where there is
consent; meeting of minds; coincidence of wills, or consensus ad idem.1 (Salisbury

Parties’ minds must meet on all material aspects of the contract. They must agree on all
material terms of the intended relationship and on the nature of the agreement (what
they are agreeing to do or not to do; its object and finality) and any other.

Factors that negates genuine consent

What appears to be an agreement where parties’ minds seemingly have met cannot be
for want of genuine consent. Genuineness of consent can be affected by fraud,
misrepresentation, duress or undue influence. A party who agrees to contract due to
1
Municipality Employees Association v Salisbury City Council 1957 R&N 127, 137 H.)
fraud, misrepresentation, duress or undue influence has the right to avoid the contract
because there was no genuine consent.

i. Fraud and misrepresentation

A contract induced by fraud may be rescinded. If such a contract is rescinded before

any losses are incurred, then there is no likelihood of a cause of action against the
rescinding party. If losses have been incurred, then action can be based on delict. The
injured party must establish that, i. there was a misstatement of a material fact, that is
false information was presented as a fact, ii, misstatement must be about a key fact
relevant to the contract, iii the said statement must be made with intention to defraud
the party seeking to rescind the contract, iv. On the basis of the false statement, the
innocent party entered into the contract.

ii. Duress- occurs where X is ‘forced’ to sign a contract, that is, contract is made because
of a threat that gave no sensible way out. In Blackburn v Mitchell, 2
a ship ran aground
near Cape Town and there was a danger of it breaking up due to the weather. A tug offered to
assist A tug offered to assists Mitchell, the captain of the ship at two thousand pounds. Mitchell
protested that he was an exorbitant amount but the tug threatened to leave unless Mitchell
signed an unconditional promise to pay which he eventually did. The court ruled that the
agreement to pay had been signed under protest. It was further held that where the alleged
duress is to the property (duress of goods) as opposed to the person of the aggrieved party, a
contract will be set aside if the party made a categoric protest at the time of paying. However the
court was on the view that the tug was entitled to a reasonable remuneration.

iii. undue influence- If a party can show that he entered into a contract because of
undue influence he can be allowed to rescind or opt out of the contract. Unlike duress,
undue influence is not direct but indirect pressure. Thus it usually exists where one
person occupies a position of influence in another person’s life e.g. the relationship
2
1897 14 SC 225.
between a son in law and his father in law or doctor and a patient. These influential
people can weaken the power of resistance especially where they ask to contract with
you. They weaken the power of resistance of the other party. The person who occupies
an influential position however should have used his position in an unconscionable
manner to persuade the other to agree to a prejudicial transaction.

Requirements of Undue Influence i. That the other party exercised influence over the
other, ii That the influence weakened the latter’s power of resistance, iii That the other
party exercised in the influence in an unscrupulous manner to induce him to consent. In
Preller and Others V Jordan,3 J claimed back his 4 farms which he had donated to his doctor.
He alleged that the contract took place when he was so old and mentally weak and exhausted. P
influenced him to transfer his farms to him (P) for P to administer them for the benefit of J’s
wife. It was held on appeal that in various cases in judicial dicta or in decisions, it has been
recognized that such improper influence may be a ground for cancelling the contract.
Whilst undue influence is likely to exist where there are special relationship it can also
exist where there is no such relationship as can be illustrated by the case of Patel
Grobbelar 4, in this case the owner of a farm had mortgaged his property in favour of a
person whom he believed to have supernatural powers. The court allowed the
cancellation of the bond because it had been induced by the other party.

iv. Mistake
A mistake an erroneous belief, at contracting, that certain facts are true. It can be argued
as a defense, and if raised successfully can lead to the agreement in question being
found void ab initio (void from the start) or voidable, or alternatively an equitable
remedy may be provided by the courts.

A mistake can be in relation to law or fact. A mistake of law occurs when a party
enters into a contract, without the knowledge of the law in the country, the contract is

3
1956 (1) SA 483 AD.
4
1974. 1. SA 532.
affected by such mistakes but it is not void. The contract is still binding given that
ignorance of the law is not an excuse. However, if a party is induced to enter into a
contract by the mistake of law then such a contract is not valid. 5

A mistake of fact occurs where both the parties enter into an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement is void. An
erroneous opinion as to the value of the thing which forms the subject-matter of the
agreement is not to be deemed a mistake as to a matter of fact. 6 For example, A sells a
cow to B for $80 because it is an infertile cow. The cow is actually pregnant and worth
$1000. The contract is void.7

2. Contractual capacity
Parties to a contract must have the capacity to contract. This entails that they must be
capable of entering into legally binding relationships. They must be in a position to
understand and appreciate the nature and consequences of their actions and act in
accordance thereof. Generally all legal subjects are capable of acquiring rights and
incurring obligations hence can contract. However, the law deprives some categories of
legal subjects of this capacity. Some categories have limited contractual capacity
whereas others have absolutely none.

i. The State-the state has same capacity as any other legal entity. However, the State
Liabilities Act [Chapter 08:14] restricts the state’s ability to contract to fetter (restrain)
future execution power or deprive self of power to dismiss employees.8.

5
Kleinwort Benson Ltd v Lincoln City Council et al. [1999] 2 A.C. 349.
6
McRae v Commonwealth Disposals Commission,[1951] HCA 79, (1951) 84 CLR 377.
7
Sherwood v. Walker 66 Mich, 568, 33 N.W, 919 (Mich, 1887).

8
Waterfalls Town Management Board v Min. of Housing 1956 R&N 691; 1957 (1) SA 336.
ii. Minors- persons of 18 years and below have limited contractual capacity. They can
only contract with assistance of a guardian. A guardian is a parent or in the absence
thereof, anyone appointed by court to be so.9

The capacity of minors to create legal relationship is limited as a matter of policy.

Minors below the age of 7 are presumed to be doli incapax (cannot distinguish between
right and wrong and cannot act in accordance with such appreciation). The
presumption is irrebuttable, that is, no amount of evidence can be adduced or required
to prove otherwise. However, a person above 7 but below the legal age, are presumed
to be doli capax, that is, there is a rebuttable presumption that they are capable of
forming an intent and as such can distinguish between right and wrong and can act
accordingly.

A married minor attains majority status with contractual capacity. 10 The married minor
retains the status even in the event of divorce before attaining majority age.

Minor may set aside contract if it binds him after attaining majority or is prejudicial to
him. In Wood v Davies11 - while W was a major, he inherited money through a will providing
that the money would remain in trust and that he would only be entitled to interest on the
capital. During his minority, his father (guardian) purchased a house on his behalf. The
Purchase price was to be paid in instalments. He lived with his parents on the property. When
he reached majority, a considerable portion of the purchase price a still unpaid. The instalment
would absorb most of the interest payable to him. He claimed cancellation of the contract. Court
allowed cancellation. However, D was to receive credit from W for use and occupation of
property.

9
General Law Amendment Act [Chapter 08:07].

10
Berning v Berning 1942 (1) PH B26 (W).
11
1934 CPD 210.
CONTRACT WITH AN UNASSISTED MINOR- they are generally not enforceable
against minor unless; (i) ratified by guardian (ii) ratified by minor upon attaining
majority.

A contract with a minor is VOIDABLE. The minor is liable for performance under the
contract except to extent has benefited therefrom. If fraudulently misrepresented to a
major that is of full age to induce contracting= liable in delict for any loss caused by
fraud but not on contract.

Contracts entered into between a minor and another person (mostly a major) is voidable
at the instance of the minor. Its validity depends with the minor. The major is bound to
the contract.

iii. Artificial persons=limited contractual capacity. They can only act through
authorized human agents, eg, a company can only act through its board of directors as
duly authorized by its articles f association or resolutions of the general meeting of
shareholders.

iv. Prohibited by law eg insolvents, prodigals, insane, intoxicated. Status of contracts

with no contractual capacity (insane; intoxicated)= void AND with limited (insolvents;
prodigals)= voidable.

A void contract is a formal agreement that is unenforceable, eg, an illegal

arrangement/agreement.

A voidable contract is a defective contract whose validity depends with the innocent party, eg
a contract induced by misrepresentation or a contract involving a minor.

v. marital status- affects parties’ contractual capacity. The capacity of married persons
to enter into legally binding contracts depends with their marriage regime. They are
basically two regimes recognized by law, that is, marriage in community of property
and marriage out of community of property.
Marriage in community of property means that the spouses own their property jointly.
They have a joint property regime so a contracting spouse requires the consent of the
other if the subject of the contract is the joint property. Marriage out of community of
property meaning that everything each person owns or gets before and during the
subsistence of the marriage remains his/ her own. The spouses are also not liable for
each other’s debts unless the debt is acquired jointly. A spouse who owns property can
dispose of it as he/ she pleases. In Zimbabwe all marriages are presumed to be out of
community of property, unless the parties enter into an ante nuptial contract prior to
the marriage. This has been the law in Zimbabwe since the 1929 Married Person
Property Act. Parties are thus free to contract without seeking to the approval of the
other.

3. Possibility of performance

A contract is valid if its object is possible of being performed. For example, in contract
of sale, the subject of sale must either exist at the time of contracting or at a future
determinable date. There must be no foreseeable physical or legal impediment to
performance. We thus cannot contract to engage in a project that is both physically and
legally possible.

4. Legality/Lawfulness

Parties must agree to something that is allowed by law or that the law does not prohibit.
The contract must be legal with respect to both the nature and consequences of the
contract. A contract is illegal if prohibited by a rule of statute or contrary to good morals
(contra bonos mores) as dictated by society. Example of illegal contract includes, letting a
building for use as a brothel and of late selling or offering to sale goods or services in
currency that is not the designated legal tender. 12

12
Statutory Instrument (SI) 213/2019 – Presidential Powers (Temporary Measures) (Amendment of
Exchange Control Act) Regulations, 2019.
There are two principles that determines the position of parties to an illegal transaction
(the enforceability or otherwise of the said contracts). It must be pointed out that an
agreement pursuant to an illegal transaction is a legal nullity, that is, it is null and void
from the start (void ab initio) and as such, no rights and duties can flow therefrom.
However, where performance has been tendered in pursuant to the transaction, these
principles determine the position.

i. Ex turpi causa no oritur actio (“no cause of action can arise from a base cause”)-
prohibits enforcement of immoral or illegal contracts. A party who had lost as a result
of an illegal arrangement cannot bring an action before the courts to recover the said
loss. In Chioza v Siziba, 13
it was observed that án illegal agreement which has not yet been
performed either in whole or in part will never be enforced by the court. This rule is absolute and
admits of no exception[. …]  It is based on the principle, expressed variously, that the court
cannot aid a party to defeat the clear intention of an ordinance or statute; that courts of justice
cannot recognize and give validity to that which the legislature has declared shall be illegal and
void; and that the courts will not permit to be done indirectly and obliquely what has expressly
and directly been forbidden by the legislature. The order of the court a quo would have such an
effect and could not be allowed to stand.

ii. In pari delicto potior condictio defendentis (possidentis) ("in equal fault (better is the
condition of the possessor)“)- loss lies where it falls. See Chioza v Siziba (above) where the
court stated that he effect of the in pari delicto rule is that where something has been delivered
pursuant to an illegal agreement, the loss lies where it falls, the objective of the rule being to
discourage illegality by denying judicial assistance to persons who part with money, goods or
incorporeal rights, in furtherance of an illegal transaction. However the general rule expressed
in the maxim is not one that can or ought to be applied in all cases and that it is subject to
exceptions which in each case must be found to exist only by reference to the principle of public
policy. Where public policy is not foreseeably affected by a grant or a refusal of the relief claimed,
that a court of law might well decide in favour of doing justice between the individuals
concerned and so prevent unjust enrichment. Where a party to an illegal contract seeks not to

13
[2015] ZWSC 4 (22 February 2015).
enforce the illegal contract but to obtain relief from the consequences of his illegal action, the
courts have, in order to prevent an injustice or to satisfy the requirements of public policy, or
obviate a situation where one party is unjustly enriched at the expense of the other, intervened
and granted relief from the rigid application of the rule.14

5. Certainty

An agreement must have a definite determinable content for ascertainability and

enforceability for it to be regarded a valid contract. Law does not enforce vague
agreements. Parties must be clear on what they are agreeing to and the consequences
thereof. Parties’ seriousness to create legally binding relationships can be deduced from
this. This element determines whether the parties have serious intention to be bound
(anumus contrahendi) and distinguishes contracts at law from so-called gentleman’s
agreements.

6. Formalities

As a general rule, formalities are not necessarily a requirement for validity. Formalities
can only be a requirement if they are prescribed by law. This means that an oral contract
is equally valid just as a written one. The only difference is that an oral contract is
difficult to prove in the event of a dispute. The law thus through legislation, had
intervened in order to reduce disputes. However, these legislative interventions MUST
NOT BE SEEN TO BE PRESCRIBING CONTRACTS.

It is not a requirement that a contract be written for it to be valid. An oral contract is

equally valid. However, certain contracts are as a matter of law, supposed to be written.

i. .Sales of land.

14
See also Dube v Khumalo 1986 (2) ZLR 103.
 In Zimbabwe there are no legal requirements that the actual sale be in writing.
However, sale of land is normally accompanied by requirement to transfer ownership
which is regulated by the Deeds Registries Act [Chapter 20:05].

ii. Donations – is a unilateral contract in terms of which one party (the donor)
voluntarily transfers the title and possession of a thing, from himself to another person (done) ,
without any consideration. It is valid if informal except in cases of donatio mortis causa
where a gift is donated in contemplation of death. The Wills Act [Chapter 6:06]
prescribes that such a donation be in writing (evidence of donor would not be
available).
iii. Apprenticeship –section 38 of the Manpower planning and Development Act
[Chapter 28:02] requires apprenticeship contract to be in writing

Formation of contracts

Contracts can be formed through either an offer or acceptance OR a complex process of

tendering. The offer and acceptance process if the most common for of contract
formation.

Offer and Acceptance

An Offer is a promise to do something or not to refrain from doing some specific thing

and signals intent to contract. 15 It is an expression of the will, made with the intention of

creating a contract. It is a proposal to contract. An offer can be described as a

declaration of intention by one party (the offeror) to another (the offeree), indication the

performance that he is prepared to make, and the terms on which he will make it.

An offer is usually addressed to a specific person, but may also be addressed to a group
of people, or even to the general public. The offer of a reward, by advertisement, is the
most important example of an offer to the general public. To constitute an offer, a
15
Saambou- Nasionale Bouverieniging v Friedman 1979 (3) SA 978 A 991G-
declaration of intention must set out the essential and material terms of the envisaged
contract to such an extent that mere acceptance will render the legal consequences of
the contract certain and objectively ascertainable.
An offer is usually addressed to a specific person, but may also be addressed to a group
of people, or even to the general public. The offer of a reward, by advertisement, is the
most important example of an offer to the general public.

Offer distinguished from an advertisement

In most cases, advertisements do not count as offers to enter into a contract.

Announcements, brochures, and catalogs also do not reach the level of an offer. Instead
of counting as an offer, an advertisement is an invitation for a deal, meaning if the
person who published the advertisement decides not to sell the item at the advertised
price, this would not count as a breach of contract.

In the case Carlill v Carbolic Smoke Ball Company,16 the Carbolic Smoke Ball Company
stipulated in an advertisement that they would reward a sum of one hundred pounds
to anyone who used their smoke ball as directed for a specified period and still
contracted influenza. The court decided that although the offer was made to the world
at large and Mrs Carlill did not give any notification as to her acceptance of the offer,
through her actions she fulfilled the stipulated terms, therefore a valid contract existed
and she was entitled to the reward.

The party making the offer is known as the offeree. The offeror must have the intent to
be bound to the contract and that intent must be clearly expressed or manifested. Terms
of an offer must be sufficiently detailed so that each party’s promise are certain. It must
be communicated to the other party clearly. Sometimes terms are presumed, eg, a
mailed computer is presumed to be properly packaged. Offer must be made by a party
with contractual capacity and must be lawful.

Termination of an offer

i. Revocation- withdrawal of the offer by the offeror before acceptance.

16
[1897] EWCA Civ 1.
ii. Rejection- by the offeree. An offer is rejection by lapse of time, if an offeree makes a
counter-offer that creates a rejection of the original offer but keeps negotiation open by
presenting new conditions.

iii. By operation of law- intervening illegality, destruction of subject matter, death or

insanity of offeror or offeree.

ACCEPTANCE

An acceptance is a clear and unambiguous declaration of intention by the offeree,

unequivocally assenting to all terms of the proposal embodied the offer. The offeree
intention to accept the offer may be express or tacit. Silence cannot ordinarily b treated
as acceptance. Therefore the offeror may not force the contract on the offeree by sending
unsolicited goods through the post with a stipulation that, unless the offeror hears to
the contrary within a certain time, he will assume that the offeree has agreed to buy the
goods.

Effect of Silence on Acceptance- though it is commonly said that “silence gives

consent”, this statement is misleading when dealing with the law of contract. Though
an agreement can be made tacitly as well as expressly, it does not follow that because an
offer may be tacitly accepted that therefore mere silence when an offer has been made
will be equivalent to consent. Silence does not give rise to consent unless in law there is
a duty to speak.

It is necessary to consider in what circumstances the law may impose a ‘duty to speak’.
Clearly where an initial offer or pronouncement is not in itself unequivocal, silence
thereon cannot constitute a valid tacit contract.

 Acceptance must be absolute, unconditional and identical with offer.

 The offer and acceptance must entirely agree as regards the subject matter of the
contract. There must be exact correspondence between the offer and acceptance
 as regards the subject matter of the contract, but also the acceptance must agree
with the offer as regards all the other terms and conditions.

 Acceptance must be absolute, unconditional and identical with offer.

 If the parties are in the presence of one another there must be communication of
the acceptance to the offeror. It is not sufficient for the offeree to accept the
proposal mentally; he must inform the offeror that he does so. He must manifest
his intention by words or conduct.

The mirror image rule

Correspond in every respect. – All elements of the offer & acceptance to coincide.
Contract is completed where offer is accepted

The acceptance must be unqualified.

The acceptance must be complete and unequivocal assent to every element of the offer;
there can be no valid acceptance where the whole offer or nothing more or less is
accepted. This is the so called “mirror-image” rule. If the offeree acceptance is
conditional or contains new terms or leaves out original terms, then there is no clear
acceptance and no consensus is reached.
 
A qualified acceptance constitutes a counter –offer, which the original offeror may
accept or reject. An ambiguous acceptance does not qualify as acceptance. For example
X offers to sell his car to Y for ZW$10 000.00. Y replied that he is interested in the offer
on condition that X reduce the price to ZW$8 000.00.

Determining acceptance

When is acceptance deemed to have been made s significant for it determines when the
contract was made. This is important for issues like determining the court with
jurisdiction over the contract in the event of a dispute.
Theories that determines when acceptance is deemed to have been made.

The Declaration Theory – states that the contract comes into being when and where the
offeree expresses acceptance – that is, when he or she writes or signs the letter of
acceptance.
The Expedition Theory – states that the contract comes into existence when and where
the offeree posts his/he letter of acceptance.
The Reception Theory – states that the contract comes into existence when the letter of
acceptances reaches the address of the offeror
The Information Theory states that the agreement is concluded when and where the
offeror learns or is informed of the acceptance, in order words, when the offeror reads
the letter of acceptance.

The tendering process

Engineering projects are complex by nature hence the simple offer and acceptance
mode of forming a contract may not suffice. These projects are largely formed through a
complex tendering process that will be dealt with in the next chapter.

Contents of a contract

What makes up a contract? A contract is made up of terms and conditions. A term is a

provision forming part of a contract. It can either be express or tacit/implied.
An express term is one that the parties expressly agree to eg prices in contract of sale.
A tacit/implied term does not necessarily have to agree on them but imported into by
either operation of law of conduct.

Essentialia is the minimum that must be present for a contract to be legally binding and
effective. It distinguishes a particular contract from similar ones and gives it its identity.
Naturalia is a natural provision which flow automatically from the type of contract as a
result of law. Parties do not need to agree on them expressly for them to exist.

Condition is an act or event that affects a party’s contractual duty. It qualifies the duty-
suspends the operation thereof. Can fall into any of these categories,

(i) Suspensive conditions (or condition precedent) - If the parties agree that the
performance of obligations under the contract is not enforceable until a certain
condition is fulfilled,

(ii) Resolutive condition (or condition subsequent) is when the parties agree that the
obligations under a contract should operate in full, but comes to an end if an uncertain future
event either does or does not happen, they are said to have agreed to

Warranty

A warranty is a written assurance that some product or service will be provided or will
meet certain specifications. A party who gives such a warranty assumes liability for
performance in the event of the product failing to perform as guaranteed. A party who
had made a warranty cannot rely on an as it stand (voetstoots clause).17

Warranty can in be in any of these forms,

i. Express warranties, to which the parties expressly agree, and include in the written
contract.

ii. Implied warranties, which are determined as per the officious-bystander test that is,
whether an unstated condition was originally implied at the time of writing the
contract? It is deemed to have been included by implication if the parties intended to
include it.

17
Schmidt v Dwyer 1959 (3) SA 896 (C).
iii. Residual warranties, which apply to contracts because of the operation of the
common law. Examples include a seller’s warranty against eviction in a contract of
purchase and sale 18 or a seller’s warranty against latent defects in the same contract.

Exemption/exclusionary clauses

Exemption or exclusionary clauses are the opposite of warranties. They are clauses in a
contract that are designed to exempt persons from liability that would ordinarily apply
to them under the law. They can also serve to limiting the liability of contracting parties.
Their application to a particular contract depends with whether parties expressly
agreed thereto or as usually the case, on the operation of the doctrine of quasi-mutual
assent, which protects someone who reasonably assumes that the other party assents
thereto. The assent may be indicated by, i. a signature on a document (in which case the
principle is traditionally expressed by the phrase caveat subscriptor), ii. conduct, which is
the case where the clause appears, for example, on a ticket or on a notice at the entrance
to premises, eg. ‘goods left at owner’s risk’ OR ‘chengetai nhumbi dzenyu, dzakarasika
hatiripe.’ However, must be drafted clearly to cover damage or loss within the defined
circumstances as the case with premises covered. In Weinberg v Olivier,19the owner of a
garage was found to be liable for damage to a car parked there, in spite of an exemption
clause in the basic bailment contract,20 because it did not to cover damage occurring
outside the garage.

In the absence of an express agreement on its applicability, the exemption or exclusion

can only be valid if it can be established that it was reasonable for the party relying on
the said contract to assume that the other party assented to the clause or was prepared
to be bound by the terms thereof regardless of the said terms. This assumption can be

18
See Van der Westhuizen v Arnold 2002 (6) SA 256 (C).
19
1943 AD 181.
20
A bailment contract governs an agreement whereby someone hands something to someone else for
safekeeping, with an undertaking from the second someone that he will care for that something as a
reasonable person would
made if it is the nature and appearance of the contract in question or as can be deduced
from the conduct of the parties. The party seeking to rely on the clause must have taken
sufficient steps to bring the existence of the clause to the other’s attention under the prevailing
circumstances.

The clause must be clear and unambiguous. In Durban's Water Wonderland v Botha,21
where the respondent and her child sustained injuries when they were thrown off a
malfunctioning jet ride at an amusement park, the court found that the exemption
clause clearly covered any liability based on negligence related to the ride's design or
manufacture.

An exclusionary or exemption clause is of no force if made with intention to

misrepresent, defraud, force (duress), unduly influence or as a result of mistake.

These clauses are a favourite of corporate business organisation for planning purposes,
protection from liabilities and to control variables that are otherwise uncontrolled. 22
This invariably increases the courts’ interests in them. The courts’ approach to them is
one of caution and suspicion. They are, as a result, when unclear (which is generally the
case), they are interpreted restively, 23 and are subjected to a public policy scrutiny for
compatibility.24

Exemption clauses often bring into issue questions of equity between big business and
the common man.25 However, the fact that exemption clauses are generally held to be
operative does not mean that a specific exclusionary clause cannot be declared contrary
to public policy and as such unenforceable. The courts will not enforce agreements
judged to be contrary to public policy. The question is whether upholding the relevant
clause or other term would conflict with the interests of the public as a result of extreme

21
1999 (1) SA 982 (SCA).
22
See Durban's Water Wonderland v Botha 1999 (1) SA 982 (SCA)( exclusion of liability from negligence due to
design and manufacture.)
23
See Wells v SA Alumenite 1927 AD 69.
24
See Wells case above and Afrox case below.
25
See Afrox Healthcare v Strydom 2002 (6) SA 21 (SCA).
unfairness or other policy issues;[ in other words, whether a contractual provision, in
view of its extreme unfairness or other policy considerations, conflicts with the interests
of society.

A party cannot seek to exempt himself from liability for loss or damage to the property
of another caused by his own intention (dolus) or by that of his servants or agents. To
permit of such a situation would be contrary to good morals (contra bonos mores). A
party cannot exempt himself from liability for the wilful misconduct, or criminal or
dishonest activity (fraud,26 in other words), of himself or his employees or agents. In
Wells v SA Alumenite,27 the aggrieved party had been induced into buying a lighting
company based on a misrepresentation, but there was a clause exempting seller from
any misrepresentation. The court held that "if people sign such conditions they must, in the
absence of fraud, be held to them. Public policy so demands."28

Although it is clearly established a clause seeking to exclude liability for fraud is

invalid, yet liability may be excluded for employees’ dishonest conduct if their
employer does not profit from it, and even for a party's own “wilful default.” A party
can be exempted from liability not only for negligence but, as per Afrox, also for gross
negligence. In Government of the Republic of South Africa v Fibrespinners & Weavers 29 the
court gave effect to a clause exempting an employer from liability for theft by its
employee.30 Where one exempts oneself from negligence, however, one should do so
explicitly. In cases of ambiguity, the clause is interpreted not to exclude liability for
negligence.

Inequality of bargaining power is not in itself a ground for nullifying exemption

clauses; nor does the principle of good faith operate as an independent criterion. The
Constitution provides considerable potential for cutting down the range of permissible

26
See Wells v Sa Alumenite 1927 AD 69.
27
1927 AD 69.
28
At 73.
29
1977 (2) SA 324.
30
See also FNB v Rosenblum 2001 (4) SA 189 (SCA).
exemption clauses, however. A clause drafted in terms that exceed the bounds of what
is permissible is confined to those bounds, rather than invalidated.

Performance, breach and remedies

A contract by definition and nature gives rise to rights and obligations (duties). It
creates a legal relationship in form of creditor-debtor. The party who is owed
performance as a result of the contract is the creditor and the one to whom performance
is expected is the debtor. Failure by a party who is expected to perform amounts to
breach of a contractual duty and entitles a creditor to a variety of remedies aimed at
enforcing the contract.

Breach

Breach can take any of the following forms;

i. MORA DEBITORIS- this is failure by debtor to make timeous performance. Occurs

where performance is possible but debtor, who is aware that performance is required,
fails to perform on time.

ii. MORA CREDITORIS- is when creditor delays giving assistance to debtor where
such assistance is required for debtor to perform. Occurs where creditor makes it
difficult for debtor to perform. Eg. Creditor obstructs performance or refuses to accept
delivery.

iii. POSITIVE MALPERFOMAMNCE – is when debtor performs but performance is

defective or not per terms of contract. Eg. Performance is incomplete or defective; does
something prohibited from doing.

iv. REPUDIATION – this occurs when a party who has no lawful excuse not to
perform, indicates an intention not to perform some or all duties.
v. PREVENTION OF PERFOMANCE- is when there is an inability to perform as a
result of the actions of one of the parties. This may result from actions of either party.

Remedies

These are recourses for breach that the innocent party is entitled to. They include
SPECIFIC PERFOMANCE, CANCELLATION, DAMAGES & DECLARATION OF
RIGHTS.

i. SPECIFIC PERFOMANCE: are remedies designed to compel the defaulting party to

perform as promised under the contract. They are only viable where tendering
performance is still feasible. Specific performance is an equitable and discretionary
remedy issued by the court which compels a contracting party to do that which he has
promised to do. In general, the injured party has the right to claim specific performance
if he is ready to carry out his own obligation under it, but the court has a discretion to
order it or not. In Farmers’ Co-op Society v Berry, 31
the court said, ‘prima facie every party
to a binding agreement who is ready to carry out his own obligation under it has a right to
demand from the other party, so far as it is possible, a performance of his undertaking in terms of
the contract ... It is true that courts will exercise a discretion in determining whether or not
decrees of specific performance should be made.’

Generally there is a right to specific performance. The court has discretion whether to
award it. 32
However, the court may refuse particularly where: (a) Performance is
inappropriate (debtor is insolvent) (b) Performance is contrary to public good (c) It
would be unduly harsh to expect the debtor to perform. Specific performance may also
be refused where cost of compliance to defendant is out of proportion to benefit to
plaintiff.

ii. Cancellation- Parties may at any time agree to cancel a contract. However, unilateral
cancellation is when one party cancels. This remedy available where the breach is
31
Farmers’ Co-op Society (Reg) v Berry 1912 AD 343.
32
See Farmers’ Co-op Society v Berry and also Tamarillo (Pty) Ltd v BN Aitken (Pty) Ltd 1982 (1) SA 398 (A).
material (goes to the root of the contact). The aggrieved party has election whether to
cancel contract or uphold it (and claim Specific Performance).

If a party elects to cancel the contract, he must notify the defaulting party. In some
circumstances conduct may be sufficient notification of cancellation.

Effect of cancellation- Contract ceases to exist and restitution (restoration to previous

position) must occur.

iii. Declaration of rights- where there is confusion about a right or obligation in a

contract, either party may approach the court for an interpretation of that right or
obligation.

iv. Damages- contractual damages puts the aggrieved party in the (financial) position
he would have been in had the contract been properly performed. Damages can either
be for loss actually incurred or prospective loss. However, there are no damages for
emotional suffering.

Where damages are an adequate remedy, the remedy for specific performance may not
be applicable.

Discharge of contract

Eventually, a contract comes to an end. This is when the obligation has been performed.
There are rules that govern the discharge of contract.

i. Performance

A completion of the parties’ obligations under the contract naturally brings it to an end.
The period upon which performance must be rendered can be fixed by the contract or
indefinite. Substantial performance occurs where the substantial part of the contract has
been performed and payment need to me made.
ii. Assignment and delegation

A contractual obligation may be performed by a third party. This is when rights in the
contract are transferred to another- assignment and the debtor must then direct
performance to the third party who becomes the creditor. If the contractual duties are
transferred to a third party- delegation, then the third party is expected to replace the
debtor and render performance. However, service contracts that require personal
performance cannot be assigned.

iii. Discharge by breach

When a party to a contract does not perform as required, there is a breach of contract. A
breach entitles the innocent party to a remedy and the nature of remedy is determined
by the breach. If breach is material, that is, goes to the root of the contract, for eg, non-
performance tendered or performance tendered is of poor quality that it fails to meet
the expected standards, the innocent party can cancel the contract thus bringing it to an
end.

Anticipatory breach/repudiation- occurs, if before performance takes place, a party to a

contract indicates inability or lack of desire to perform.

iv. Discharge by agreement

Just as parties have freedom to contract, they also have freedom to agree to modify or
terminate their obligations under the contract. Discharge by agreement takes any of the
following forms;

a. recession- occurs when both parties agree that the contract should terminate
without performance. It discharges obligations of both parties under the contract.

b. novation- all the parties agree to discharge one party from the contract and create
a new contract with another party who becomes responsible for the discharged
party’s obligations.
v. Discharge by impossibility, impracticability or frustration

The doctrine of discharge by legal impossibility applies. The doctrine ends the
obligations to a contract when an event occurs that makes performance impossible.
Impossibility occurs when an even occurs that makes performance impossible.
Impracticability occurs when a party to a contract who was to provide services dies or is
incapacitated Or a law is passed making performance of the contract illegal OR the
subject matter of the contract is destroyed.