GENERAL

PRINCIPLES OF
CONTRACT
LECTURE ONE – INTRODUCTION
 Lecture key issues
• What is a contract?
• What are the requirements of a contract
• What is the nature of a contract?
• How does the law of contract relate to other branches of the law of
obligations?
• Where does the modern notion of contract stem from?
• What are the fundamental features of the law of contract?
• How do we tell if a contract has been entered into?
• How does the law regulate contracts?
• How does the constitution apply to contracts?
 What is a contract?
• A contract is an agreement entered into by two or more persons with
the serious intention of creating a legal obligation or obligations.
• The agreement must be one that the law recognises as being binding
on the parties
 Requirements of a contract
• A valid and binding contract meets the following requirements:
There is consensus between the parties
The parties have capacity to contract
Required formalities are observed
The agreement is legal
Performance is possible
The content of the contract is certain
 Characteristic features of a
contract
• A contract has characteristic features:
• it is a juristic act (the law attaches the consequences intended by the
parties)
• it is necessarily bilateral, or even multilateral; it entails promises or
undertakings on one or both sides (to make a certain performance-
to give something (dare), to do something (facere), or to refrain from
doing something (non facere)-or it may be a warranty that a certain
state of affairs exists
• most contracts entail reciprocity (one party’s performance is
promised in exchange for the other part’s performance).
 Modern contracts
• The modern concept of contract is generalised: an agreement does
not have to be of a specific type before it will be enforced.
Concept of good faith in modern
contracts
• Contractual parties are required to conduct their relationship in a
manner that is consistent with good faith (bona fides).
 Law of contract and law of
obligations
• The law of contract forms part of the law of obligations. An obligation
is a legal bond between two or more persons, obliging the one (the
debtor) to give, do, or refrain from doing something to or for the
other(the creditor).The right created by an obligation is a personal
one (a ius in personam), as opposed to a real right.
 Civil vs natural obligation
• If an obligation is enforceable by action in a court of law, it is a civil
obligation, as opposed to the less common natural obligation, which
is unenforceable.
 Contract and delict
• The primary sources of obligations are contract and delict. A delict is a
wrongful and blameworthy conduct that causes harm to a person.
There is a close similarity between a breach of contract and a delict.
Both are civil wrongs that may give rise to a duty to pay damages as
compensation.
• Certain conduct may constitute both breach of contract and delict.
There is then concurrent liability and the plaintiff may sue on either
basis.
 Unjustified enrichment
• Another source of obligations is unjustified enrichment, when there
is a shift of wealth from one person’s estate to another without a
good legal ground or cause for this shift.
• Where a party transfers an asset to another in performance of a
contract that is invalid for some reason, the shift in wealth is without
good cause (sine causa), and an enrichment action for the restitution
of the asset will lie .
 Origins of SA Contract Law
The South African law of contract is a modernised version of the
Roman- Dutch law of contract which is rooted in Roman law.
• Pacta sunt servanda The Roman Dutch law of contract recognised the
principle that all serious agreements ought to be enforced ( pacta sunt
servanda). All contracts were now said to be consensual and bonae fidei-that
is based on mere agreement and good faith.
• Consensus ad idem. Genuine agreement, as the basis for contractual
obligations, presupposes an actual meeting of the minds of the parties.
Subjective consensus of this nature exists when all the parties seriously
intend to contract, are of one mind ( ad idem) as to the material aspects of
the contract, and are conscious of the fact that their minds have met
 When do we say a contract has
been entered into?
• Whether a legal system will uphold a contract where there is a
divergence between the true intention and the expressed or
perceived intention of the parties depends upon whether its
approach to contract is subjective ( focused on an actual meeting of
minds) or objective (focused on the external appearance of
agreement).
 1. Will theory
• The will theory postulates an extremely subjective approach to
contract: consensus is the sole basis of contractual liability with the
result that if there is no genuine concurrence of wills, there can be no
contract.
• However, unqualified adherence to the will theory would produce
results that are both unfair and economically disastrous.
 2. Declaration theory
• In contrast, the objective declaration theory stipulates that only the
external manifestations of the parties’ will is important.
• The true basis of contract is to be found in the concurring declarations
of the parties not in what they think. This extremely objective
approach to contract is also unacceptable in practice, unless qualified.
 3. Reliance theory
• In terms of the compromise, reliance theory, the basis of contract is
to be found in the reasonable belief in the existence of consensus,
induced by the conduct of the other party. The reliance theory
protects a party’s reasonable expectation of a contract.
• The reliance theory should be seen as a supplement to the will
theory, affording an alternative basis for contract and circumstances
where the minds of the parties have not truly met.
 IN SA – subjective or objective?
• South African law, with its roots in Roman Dutch law, but strongly
influenced by English law, has vacillated between a subjective and an
objective approach to contract.it is now clear that the subjective will
theory is the point of departure but, in cases of dissensus, the
shortcomings of that theory are corrected by an application of the
reliance theory.
 Who proves that a contract
exists
• The onus of proving the existence of a contract rests on the person
who alleges that the contract exists.
What is the function of the law
of contract?
• The function of contract law is to provide a legal framework within
which people can transact business and exchange resources secure in
the knowledge that the law will uphold their agreements, and if
necessary, enforce them.
• As such, the law of contract underpins private enterprise and
regulates it in the interest of fair dealing.
 Fundamental ideas of law of
contract
• Fundamental concepts in the law of contract include:
• freedom of contract
• sanctity of contract
• good faith
• privity of contract.
• There is some competition between these underlying values. The idea
of freedom of contract is today under considerable pressure and courts
are increasingly willing to use common law concepts such as good faith
and public policy to ensure that contract law operates in a manner
consistent with the constitution.
 Intervention of CPA
• The legislature is also willing to intervene in private contracts to
ensure fairness –such as in the provisions of the Consumer Protection
Act, which prohibits certain terms or conditions outright, with the
result that they avoid to the extent of non compliance; where terms
are not prohibited outright, they are subjected to a requirement of
fairness and reasonableness.
 Constitutional control
• All law, including the common law of contract, is subject to
constitutional control. The Constitution therefore exerts a strong
impact on the law of contract.
 Application of the constitution
• To what extent the Constitution can be invoked directly to challenge
the validity of a contractual provision between private parties is a
matter that has provoked debate.
• The Constitutional Court appears to prefer an indirect application of
the Constitution between private parties-that is, an approach that
tests the validity of private contractual provision against the
requirements of public policy and that recognises that public policy is
now discerned with reference to fundamental values embodied in the
Constitution, and in particular in the Bill of Rights.
 Limitation of freedom of
contract by constitution
• The courts have shown a willingness to intervene if a party exercises a
contractual power in a manner that fails to respect the constitutional
rights of another party and may even, in appropriate circumstances,
be prepared to compel one party to contract with another on
constitutional grounds.
 PRESCRIBED CASES
• Conradie v Rossouw 1919 AD 279
• Smith v Hughes (1871) LR 6 QB 597
• Pieters & Co v Salomon 1911 AD 121
• South African Railways & Harbours v National Bank of South Africa Ltd 1924
AD 704
• Steyn v LSA Motors Ltd 1994 (1) SA 49 (A)
• Brisley v Drotsky 2002 (4) SA 1 (SCA)
• Barkhuizen v Napier 2007 (5) SA 323 (CC)
• Bredenkamp v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA)
• Hoffmann v South African Airways 2000 (11) BCLR 1211 (CC)