Law on Contract Notes Assignment 1

Learning Unit 1

LO1: Differenciate between a notion of a contract and other legally binding

agreements.
 A contract is an agreement between two or more parties.
 A serious intention to create legally enforcable obligations (animus
contrahendi)
 Legally binding agreements that are not a contact: obligationary, absolving
and real(or transfer) agreements
 Legally binding agreements that are more than just a contract: marriage and
judgement by consent.
 Contract: law recognises as being binding on the parties.

LO2: Explain the requirements and the key characteristics of a valid contract.
1. Consensus (Agreement Between Parties)

 The parties must reach a mutual understanding on all essential aspects

of their contract.
 This means there must be a true "meeting of the minds" regarding the
terms and obligations of the agreement.
 Even if actual agreement is absent, the law may recognize apparent
agreement based on conduct.

2. Capacity (Legal Ability to Contract)

 The parties involved must have the legal capacity to enter into a
contract.
 Certain individuals, such as minors, people with mental impairments,
and insolvent persons, may have limited or no contractual capacity.
 If a party lacks the necessary capacity, the contract may be void or
voidable.

3. Formalities (Compliance with Prescribed Form)

 While most contracts do not require a specific form, some agreements

must comply with formal requirements.
 Examples include contracts for the sale of land, which must be in
writing and signed.
  Failure to comply with required formalities can render a contract
unenforceable.

4. Legality (Lawful Nature of the Agreement)

 A contract must not be prohibited by statutory law or common law.

 Agreements involving illegal activities, such as fraud, corruption, or
drug trafficking, are void and unenforceable.
 Even if the contract is formally valid, courts will not enforce obligations
arising from unlawful agreements.

5. Possibility (Feasibility of Performance)

 The contractual obligations must be capable of being performed at the

time of agreement.
 If the performance of the contract is objectively impossible, the contract
is void.
 Example: A contract to sell a house that has already been destroyed
would not be enforceable.

6. Certainty (Definiteness of Terms)

 The terms of the contract must be clear, precise, and specific enough
for the obligations to be understood and enforced.
 If the agreement is too vague or uncertain, it may not be recognized as
a valid contract.

Understanding Contracts:

What is a Contract?

A contract is a legally binding agreement between two or more parties, where the
law enforces the agreed terms. Unlike a will (which is a one-sided legal act) or a
delict (a wrongful act like a crime or tort), a contract requires mutual agreement.
Even in cases where only one party has obligations (such as in a donation), both
parties must consent. A one-sided promise isn’t legally binding unless accepted by
the other party.

Key Features of a Contract

 1. Promises and Obligations
A contract involves commitments made by one or both parties, which can
include:
o Providing something (dare),
o Performing an action (facere),
o Refraining from doing something (non facere), or
o Guaranteeing the truth of a fact (warranty).
2. Mutual Exchange
Most contracts involve an exchange, where each party gives or receives
something in return. This is commonly known as a "bargain." In some legal
systems (such as English law), this concept is called consideration, meaning
that each party must contribute something of value for the contract to be
enforceable.
3. Economic Role
Contracts are fundamental to economic activity, enabling the voluntary
exchange of goods and services. They form the backbone of free-market
systems, where individual transactions collectively shape the economy.
4. Flexibility and Informality
Contracts don’t always need to be formal or written. Many everyday
agreements are informal and can be oral or even implied through actions.
Common examples include:
o Buying groceries,
o Taking public transport,
o Filling up at a petrol station, or
o Parking in a garage (where posted signs may indicate contractual
terms).
5. Freedom of Contract
Parties can agree to any lawful terms they choose. A contract doesn’t need to
fit traditional categories like sale or lease—if the agreement is legal and both
parties consent, it is valid.
6. Good Faith
Contracts are based on mutual consent (consensual agreements), and parties
are expected to act in good faith (bonae fidei), meaning they must deal with
each other fairly and honestly.

Contracts in Everyday Life

Contracts are an integral part of daily interactions. For instance:

 Buying a product from a store creates a contract between the buyer and the
seller.
 Using public transport involves an agreement to pay for the service.
 Parking in a designated area often comes with implied contractual terms.

Conclusion

A contract is a legally enforceable agreement that governs exchanges between

parties. It does not always require formality or written documentation, yet it plays a
crucial role in economic and personal transactions. As long as an agreement is
lawful, consensual, and made in good faith, it holds legal validity.
LO3: Compare the Law of Contract to other branches of the Law of Obligations.

The law of contract is a key component of the law of obligations, which governs
legal duties between individuals. Other branches of the law of obligations include
delict and unjustified enrichment, each of which differs from contract law in
fundamental ways.

1. The Concept of Obligation in Law

 An obligation is a legal bond (vinculum iuris) that creates a duty for one party
(the debtor) to perform an act or refrain from an act for the benefit of another
party (the creditor).
 Each obligation consists of a right (creditor's entitlement to performance)
and a duty (debtor's responsibility to perform).
 In contractual relationships, most obligations are reciprocal, meaning both
parties owe duties to each other.

2. Contract vs. Delict (Tort Law in Other Jurisdictions)

 A contractual obligation arises from a voluntary agreement between parties

who set their own terms.
 A delictual obligation, in contrast, is imposed by law when one party
wrongfully causes harm to another.
 Example of Delict: If a person negligently damages another’s property, they
must compensate the owner, even though no contract exists between them.
 Example of Contractual Obligation: A supplier who fails to deliver goods as
agreed in a sales contract is liable for breach of contract.
 Similarities Between Contract and Delict:
o Both breaches of contract and delicts can result in the obligation to pay
damages as compensation.
o A single act may constitute both a delict and a contractual breach (e.g.,
a doctor negligently performing surgery under a contract with a
patient).

3. Contract vs. Unjustified Enrichment

 Unjustified enrichment occurs when one party benefits at another’s expense

without a valid legal reason.
 Unlike contract law, which is based on agreement, unjustified enrichment
does not require a prior agreement between the parties.
 Example: If a person mistakenly pays another person money, the recipient is
legally obligated to return it under the principle of unjustified enrichment.

4. Contract vs. Negotiorum Gestio (Unauthorised Management of Another's

Affairs)
  Negotiorum gestio arises when a person (the gestor) voluntarily manages
another person's affairs without prior authorization.
 If the gestor acts in the best interests of the other party, they may claim
reimbursement for expenses incurred.
 Example: If someone prevents damage to a neighbor's house during a storm
without being asked, they may claim compensation for reasonable costs.

5. Personal vs. Real Rights in Obligations

 Contractual rights and obligations create personal rights (ius in

personam), meaning they only bind the parties to the contract.
 Real rights (ius in rem), such as ownership, bind the world at large and not
just specific parties.
 Example: A buyer in a sale agreement has a personal right to demand
delivery from the seller. However, once ownership is transferred, the buyer
gains a real right over the property.

LO4: The Impact of the Constitution on the South African Law of Contract

 Constitutional Influence on Contract Law:

o The South African Constitution impacts contract law by ensuring that
contracts align with fundamental rights, public policy, and fairness
principles.
o Traditional contract law based on strict consensus has evolved to
incorporate constitutional values like equality, dignity, and
reasonableness.
o Courts now consider economic disparity and power imbalances in
contract disputes, shifting away from the classical focus on will-based
theories.
 Application of the Constitution to Contract Disputes:
o Vertical vs. Horizontal Application: There was initial debate on
whether the Bill of Rights applied only between the State and
individuals (vertical) or also between private parties (horizontal).
o Direct vs. Indirect Application: Initially, it was unclear if constitutional
rights could be directly invoked in private contractual disputes or if they
influenced contract law indirectly through public policy.
o Du Plessis v De Klerk Case: The Constitutional Court ruled that the
Bill of Rights applied horizontally between private parties but generally
only indirectly. Direct application is allowed when it concerns state
involvement.
o Final Constitution’s Position: The Constitution is supreme (s 2), and
all law, including common law, must align with it.
o Section 39(2): Courts must promote the Bill of Rights when interpreting
and developing the common law, ensuring the law conforms to
constitutional values in all cases.
 o Section 8(2) & (3): The Constitution may directly apply to private
persons in certain cases, but the common law must be developed or
applied to give effect to rights.
 Challenges of Direct Application:
o Barkhuizen v Napier: The Constitutional Court expressed skepticism
about testing contractual terms directly against the Constitution,
preferring indirect application through public policy considerations.
o Public Policy and Constitutional Values: If a contractual term
violates a fundamental right, courts should examine whether it
contradicts public policy, referencing the Constitution’s values.
o Section 36: Rights in the Bill of Rights can be limited only by laws of
general application, not by private contractual terms.
 Impact on Contract Enforcement:
o The Constitution can make certain contract terms or the entire contract
unenforceable if they violate constitutional rights.
o Courts may now intervene in the exercise of contractual powers (e.g.,
termination of contracts or withholding consent) if the exercise of those
powers violates constitutional rights, such as the right to equality.
 Example of Constitutional Impact:
o Bredenkamp v Standard Bank: A seemingly innocent contract term
may not be enforced if its enforcement unjustifiably affects a
constitutional value (e.g., discrimination).
o Freedom of Contract vs. Constitutional Rights: While freedom of
contract remains a key principle, it may be restricted if a contract
violates constitutional rights, such as unfair discrimination.
o Example of Unfair Discrimination: If a person refuses to sell property
based on the race or religion of the buyer, this constitutes unfair
discrimination under the Constitution, and the party discriminated
against can seek redress.
 Future Impact on Contract Law:
o The full extent of the Constitution's impact on contract law remains to
be seen, but it is clear that constitutional values are increasingly
shaping the development and application of contract law.
o The principle of freedom of contract may be modified if the courts find
that a contract's terms infringe upon fundamental constitutional rights,
particularly in cases of discrimination or other violations of equality.

LO5: The Basis and Dual Basis of a Contract in Modern Law

1.7 The Basis of Contract

A contract is formed through agreement, but the question is whether this requires a
subjective meeting of minds or an objective appearance of agreement.

1.7.1 Subjective Agreement (Consensus)

  A true contract arises when both parties have a genuine meeting of minds
(concursus animorum).
 Consensus is reached when parties agree on material aspects like terms and
identities.
 Offer and acceptance typically establish consensus, either through explicit
communication or conduct.

1.7.2 Objective Agreement (Apparent Agreement)

 A contract may still be valid even if a true meeting of minds did not occur, as
long as one party reasonably relied on the external appearance of agreement.
 Courts may uphold contracts where an individual acted in a way that induced
reasonable reliance, even in cases of misunderstanding or mistake.

1.7.3 Theories of Contract

1. Will Theory – Contracts are valid only when both parties truly consent.
However, this theory has limitations, as it could lead to unfair outcomes and
economic instability.
2. Declaration Theory – A contract is based on external expressions of
agreement, regardless of actual intent. While providing certainty, it may lead
to rigid outcomes.
3. Reliance Theory – A compromise approach, which holds that a contract
exists if one party reasonably relied on the other's conduct, even if consensus
was lacking.

Most modern legal systems, including South Africa’s, use a blend of these theories,
recognizing both consensus and reliance as the dual basis of contract law.

LO6: Cornerstones of Contract

The cornerstones of contract law provide foundational principles that guide the
creation, enforcement, and interpretation of contracts. These include:

1. Freedom of Contract (Party Autonomy):

o Parties are free to decide whether to contract, with whom to contract,
and on what terms, promoting individual autonomy and economic
freedom.
2. Sanctity of Contract (Pacta Sunt Servanda):
o Contracts entered into freely and seriously must be honored and
enforced by the courts, ensuring legal certainty and trust in
agreements.
3. Good Faith:
o Parties must act honestly and fairly in their dealings, fostering ethical
behavior and preventing exploitation in contracts.
4. Privity of Contract:
 o Only the parties to a contract have rights and obligations under it,
protecting contractual relationships from external interference.

These principles represent core values in contract law, but may sometimes compete,
creating tensions between autonomy, fairness, and legal certainty.

LO7: 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.

 Consumer Protection Act 68 of 2008 (CPA):

o Fully implemented on 1 April 2011 to protect consumers and promote
fair business practices.
o Main Objectives:
 Create a fair, accessible, efficient, sustainable, and responsible
consumer market.
 Protect consumers from exploitation, unconscionable business
practices, and unjust treatment.
 Promote social and economic welfare for consumers.
o Consumer Rights Recognized:
 Equal Treatment: Protection against discriminatory marketing.
 Privacy: Protection from invasive direct marketing.
 Right to Choose: Rights to select suppliers, examine goods,
return products, cancel bookings, and cooling-off periods.
 Disclosure and Information: Clear, understandable information
about products, including prices and the nature of the goods.
 Fair and Responsible Marketing: Standards for marketing,
regulating misleading practices, loyalty programs, and
promotional schemes.
 Fair and Honest Dealing: Protection against fraud, duress,
misleading representations, pyramid schemes, and over-selling.
 Fair, Just, and Reasonable Terms and Conditions: Protection
against unfair contract terms.
 Fair Value, Quality, and Safety: A strict no-fault regime for
defective product liability.
 o Enforcement:
 Violations of CPA provisions may result in sanctions like
compliance notices, fines, and criminal penalties.
 Non-compliant contractual provisions can be declared null and
void.
o Scope of the CPA:
 Applies to most transactions between suppliers and consumers
in South Africa.
 Excludes transactions with the State or entities exceeding R2
million turnover/asset value.
 Excludes employment contracts, credit agreements, and some
specific exemptions.
 Consumer Rights to Fair Terms:
o Certain contract terms are outright prohibited:
 Terms that defeat the CPA’s purposes, mislead consumers, or
allow fraudulent conduct.
 Terms waiving consumer rights or avoiding supplier obligations
under the CPA.
 Terms limiting or excluding liability for harm caused by gross
negligence.
 Acknowledgments that no warranties or misrepresentations
were made.
o Fairness of Terms:
 Terms must be fair, reasonable, and just.
 Unfair Terms:
 Excessively favor the supplier.
 Adverse to the consumer, making the contract
inequitable.
 Induced by fraudulent misrepresentation.
 Not adequately disclosed to the consumer.
 Exemption Clauses: Liability for negligence can be excluded if
it is clearly communicated and fair.
 Reflection on the CPA's Protection for Consumers:
o Advantageous for Consumers:
 The CPA provides a high level of protection, especially in areas
like liability for defective products, consumer rights to
information, and fair business practices.
o Impact on Business:
 Businesses might face higher costs due to the strict no-fault
liability for defective products, potentially leading to price
increases.
o Fairness Test for Contract Terms:
 The test for fairness in contractual terms may appear circular,
giving courts significant discretion in evaluating whether terms
are inequitable.
 Constitutional Considerations:
 o The Constitution guides the interpretation of the CPA, ensuring that
consumer protection aligns with fundamental rights like equality,
dignity, and fairness.
o Courts must ensure that contractual terms and consumer protections
comply with constitutional principles of fairness, especially when terms
might exploit or disadvantage consumers.

Case Law

1. Beadica 231 CC and Others v Trustees for the time being of the Oregon
Trust and Others

Facts:

 The applicants, Beadica 231 CC and others, were franchisees operating

under a Black Economic Empowerment (BEE) initiative.
 They leased business premises from the Oregon Trust, with lease
agreements that included an option to renew.
 The applicants failed to exercise their renewal options within the required
timeframe, leading to lease termination and eviction proceedings.
 They argued that enforcing the contract strictly would be unfair and against
public policy, as it would lead to the collapse of their businesses and the
failure of the BEE initiative.

Issue:

 Should the court refuse to enforce the lease termination on the grounds that it
is contrary to public policy and constitutional values of fairness,
reasonableness, and substantive equality?

Rule:
  Public policy must be considered in enforcing contractual terms, particularly
in light of constitutional values such as fairness, reasonableness, and good
faith.
 Pacta sunt servanda (agreements must be upheld) remains a fundamental
principle of contract law.

Application:

 The court acknowledged the importance of fairness and constitutional values

in contract enforcement.
 However, it ruled that the lease termination was valid because the applicants
had the opportunity to renew their leases but failed to do so within the
stipulated time.
 It emphasized that contractual autonomy should not be lightly interfered with,
particularly in commercial agreements.

Conclusion:

 The appeal was dismissed, and the lease termination was upheld.
 The case reaffirmed that fairness and constitutional values influence contract
law but do not override clear contractual terms.

2. Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd

Facts:

 Everfresh leased premises from Shoprite and had a renewal clause stating
that the rental for the renewal period would be “agreed upon” between the
parties.
 Everfresh attempted to renew the lease, but Shoprite refused, arguing that the
renewal clause was unenforceable because it required further negotiation.
 Everfresh sought to compel Shoprite to negotiate in good faith.

Issue:

 Can the court develop the common law to require parties to negotiate in good
faith when a contract includes a clause requiring agreement on renewal
terms?

Rule:

 Under common law, an agreement to agree is generally unenforceable.

 However, Section 39(2) of the Constitution mandates courts to develop the
common law in line with constitutional values such as good faith and
fairness.

Application:
  The Constitutional Court found that the lower courts had failed to consider the
constitutional implications of enforcing good faith negotiations.
 While it did not decide the issue, it noted that there is room for developing
the law to require fair dealing in commercial agreements.
 The case was dismissed on procedural grounds, but the judgment
encouraged future cases to address the enforceability of good faith
negotiations.

Conclusion:

 The appeal was dismissed, but the court indicated that the common law might
need to be developed to align contract enforcement with constitutional
principles.

3. Steyn v LSA Motors Ltd

Facts:

 Steyn, an amateur golfer, hit a hole-in-one during a tournament and claimed

a car that was advertised as the prize on a sign at the 17th hole.
 The sponsor, LSA Motors, refused to award the prize, arguing that the offer
was only for professional players.
 Steyn sued for delivery of the car or its value.

Issue:

 Did the sign constitute a valid and enforceable offer to all players, including
amateurs like Steyn?

Rule:

 A contract is formed when there is a clear offer and acceptance.

 The objective test applies: Would a reasonable person believe that the
words on the sign constituted an offer open to all players?

Application:

 The court found that Steyn’s belief that the offer applied to amateurs was
unreasonable.
 The tournament’s organizers and sponsors had limited the prize to
professionals, and Steyn could have clarified the eligibility rules
beforehand.
 The court ruled that no contract was formed because there was no meeting
of the minds (consensus ad idem).

Conclusion:
  The appeal was dismissed, and LSA Motors was not obligated to award the
car to Steyn.

4. Barkhuizen v Napier

Facts:

 Barkhuizen entered into a short-term insurance contract with a syndicate of

Lloyd’s Underwriters, represented by Napier.
 The contract included a time-limitation clause (clause 5.2.5), stating that if
the insurer rejected liability for a claim, the insured had to serve summons
within 90 days, or the insurer would be released from liability.
 Barkhuizen’s vehicle was damaged, and his claim was repudiated. He
instituted legal action two years later, beyond the 90-day period.
 The insurer argued that the claim was time-barred.
 Barkhuizen challenged the clause as unconstitutional, arguing that it
violated his right to access courts under Section 34 of the Constitution and
was contrary to public policy.

Issue:

 Was the 90-day time limitation clause unconstitutional and contrary to

public policy?
 Should contractual terms be subject to constitutional review?

Rule:

 Section 34 of the Constitution guarantees the right to access courts.

 Courts must balance contractual freedom (pacta sunt servanda) with public
policy considerations.
 Time-limitation clauses must provide a reasonable and fair opportunity for
claimants to seek judicial redress (Mohlomi principle).

Application:

 The court found that while the clause limited Barkhuizen’s right to access
courts, it was not inherently unreasonable.
 The 90-day period was not manifestly unfair, and Barkhuizen did not
provide a valid reason for failing to comply.
 The court emphasized that contracts must be fair and reasonable, but pacta
sunt servanda remains a key principle.
 The case also acknowledged the role of consumer protection laws (e.g.,
Consumer Protection Act 68 of 2008), although it was not applicable in this
case.

Conclusion:
  The appeal was dismissed, and the time-limitation clause was upheld.
 The case reaffirmed that contractual terms must be consistent with
constitutional values, but freely agreed-upon contracts remain binding
unless they are manifestly unfair or against public policy.

Learning Unit 2

Theme 1

LO1: Discuss the legal effect of an offer

 Definition of an offer: An offer is a statement of willingness by the offeror to

enter into a binding contract on specified terms, made with the intention that it
will become legally binding upon acceptance by the offeree.
 Legal effect of an offer:
o Creation of a contractual obligation: When an offer is made, it
creates the potential for a binding contract if accepted.
o An offer must be clear and definite: If vague, the offer is ineffective.
o Communication of the offer: The offer must be communicated to the
offeree before it can be accepted.
o Offeror's control: The offeror controls the terms of the offer, including
time and method of acceptance.

LO2: Apply the requirements for the validity of an offer and its termination in a
practical scenario

 Requirements for a valid offer:

o Intention to be bound: The offeror must demonstrate a serious
intention to create a legal obligation.
o Definiteness and clarity: The terms must be clear enough that the
parties know their rights and obligations.
 o Communication: The offer must be communicated to the offeree for
acceptance.
 Termination of an offer:
o Revocation: The offeror can withdraw the offer before acceptance,
unless it is irrevocable (e.g., through an option contract).
o Rejection: If the offeree rejects the offer, it terminates the offer.
o Lapse of time: If the offer specifies a time frame, the offer terminates if
not accepted within that period. If no time frame is specified, it
terminates after a reasonable time.
o Death or incapacity: The offer terminates if the offeror or offeree dies
or becomes incapacitated before acceptance.
 Practical scenario:
o If a company offers a reward for information leading to the arrest of a
suspect and the offer is not accepted within the timeframe, the offer
expires.

LO3: Explain the legal position with regard to offers to the public, in the form of
advertisements, tenders, etc.

 Advertisements:
o Generally, advertisements are not offers but invitations to treat, inviting
the public to make offers.
o Example: A company advertises a product at a set price. This is not an
offer but an invitation for customers to make an offer to purchase the
product at that price.
 Tenders:
o A tender is a formal offer made in response to a request for proposals.
o Tenders are often invitations to treat, and the company requesting
tenders is not obliged to accept any offer made.
 Legal position:
o Unilateral contracts: A unilateral contract arises when an offeror
makes an offer to the public (e.g., a reward offer) and promises to be
bound if the offer is accepted by the completion of a specified act.
o Contracts with a specific group: Offers to specific individuals or a
group, such as in tenders, may be treated as offers once certain
conditions are met.

LO4: Apply the requirements for valid acceptance to when and where acceptance
takes effect in a practical contract scenario using the theories of acceptance

 Requirements for valid acceptance:

o Communication: Acceptance must be communicated to the offeror
unless the offer is unilateral (e.g., no communication needed if
completing an act).
o Mirror image rule: The acceptance must match the terms of the offer
exactly; any counteroffer terminates the original offer.
o Intent: The offeree must intend to accept the offer, and the acceptance
must be unequivocal.
 When and where acceptance takes effect:
 o Postal rule: Acceptance is deemed effective when posted, not when
received (for offers made via post).
o Instantaneous communication: For contracts formed via telephone
or email, acceptance takes effect when received by the offeror.
o Time and place: Acceptance is effective when the offeror receives it or
when specified by the offer.
 Practical contract scenario:
o If an individual offers to sell a piece of property to another and the offer
is accepted by email at 4:00 PM, the acceptance takes effect when the
offeror receives the email, which is at 4:05 PM.

LO5: Explain the different types of contracts and the legal position of the parties
involved in such agreements

 Types of contracts:
o Bilateral contracts: Both parties make promises and are bound by
those promises (e.g., a sales contract).
o Unilateral contracts: One party makes a promise in exchange for an
act by the other party (e.g., reward offers).
o Express contracts: Terms are explicitly stated (written or verbal).
o Implied contracts: Terms are inferred from the conduct of the parties.
 Legal position of the parties:
o Bilateral contracts: Each party is legally bound to perform their
obligations as agreed.
o Unilateral contracts: The offeror is only legally bound to perform once
the act is completed by the offeree.
o Express contracts: The parties are bound to the terms explicitly
stated.
o Implied contracts: The parties are bound by the inferred terms based
on their behavior, even if they were not explicitly discussed.
 Legal implications:
o Parties involved in unilateral contracts must fulfill the condition (e.g.,
completing the required act for a reward).
o In a bilateral contract, failure to perform by either party may lead to a
breach of contract and possible remedies like damages or specific
performance.

Case Law

Associated South African Bakeries (Pty) Ltd v Oryx & Vereinigte Backereien
(Pty) Ltd en Andere

Facts: The appellant, Associated South African Bakeries (ASAB), and the second
respondent, Oryx & Vereinigte Backereien (Oryx), were shareholders in a company
called Oryx & Vereinigte Backereien (Windhoek) (Pty) Ltd. A "pool agreement" was
entered into, which included a right of pre-emption (first refusal) for shareholders to
purchase shares if one shareholder wished to sell. ASAB sold its shares to Kessler,
who then sold them to Oryx, allegedly in breach of ASAB's right of pre-emption.
ASAB sought to set aside the sale of shares to Oryx, arguing that Oryx acted in bad
faith by purchasing the shares despite knowing about ASAB's pre-emptive rights.

Issues: Whether Oryx acted in bad faith by purchasing the shares despite knowing
about ASAB's pre-emptive rights. Whether ASAB's right of pre-emption was valid
and enforceable. Whether the sale of shares by Kessler to Oryx should be set aside
due to the breach of ASAB's pre-emptive rights.

Rules: A right of pre-emption grants the holder the same legal position as a prior
purchaser. If a second sale occurs in bad faith (with knowledge of the first sale), the
second sale can be set aside. The holder of a pre-emptive right can step into the
shoes of the third-party purchaser if the sale was made in breach of the pre-emptive
right.

Application: The court found that Oryx and Kessler were aware of ASAB's pre-
emptive rights when the sale occurred. Oryx argued that it was entitled to the shares
under the pool agreement, but the court found that the sale by Kessler to Oryx was
in breach of ASAB's pre-emptive rights. The court held that ASAB was entitled to
enforce its pre-emptive rights and set aside the sale to Oryx.

Conclusion: The court ruled in favour of ASAB, setting aside the sale of shares to
Oryx and allowing ASAB to enforce its pre-emptive rights.

Crawley v Rex 1909 TS 1105

Facts: Crawley was charged under the Transvaal ordinance for selling goods on
credit to a native person without a permit. He argued that the ordinance was
discriminatory and inconsistent with broader legal principles.

Issue: Was the ordinance valid, and did Crawley’s actions constitute a legal
offense?
Rule: Courts must assess whether a law is consistent with broader legal principles
and constitutional values. Discriminatory laws may be challenged if they violate
fundamental rights.

Application: The court upheld the validity of the ordinance, ruling that it was within
the legislative powers of the Transvaal government at the time. Crawley was found
guilty as he had knowingly violated the legal requirement of obtaining a permit before
selling goods on credit to a native person.

Conclusion: The appeal was dismissed, and Crawley was held liable. The case
reflects historical racial laws in South Africa and how courts at the time enforced
them without considering modern constitutional values.

Hirschowitz v Moolman 1985 (3) SA 739 (A)

Facts: Hirschowitz and Moolman entered into an oral agreement for the sale of
immovable property. Later, Moolman refused to transfer the property, arguing that
the agreement did not comply with the formalities required by law, particularly the
Alienation of Land Act 68 of 1981, which mandates that contracts for the sale of land
must be in writing.

Issue: Was the oral agreement for the sale of land enforceable despite the statutory
requirement for written contracts?

Rule: Under the Alienation of Land Act, agreements for the sale of immovable
property must be in writing and signed by both parties to be valid. Oral agreements
are unenforceable unless they fall under specific exceptions.

Application: The court ruled that the oral agreement was invalid as it did not comply
with statutory formalities. The court emphasized that statutory formalities exist to
provide certainty and prevent disputes in land transactions.

Conclusion: The oral agreement was declared unenforceable. This case reaffirmed
the strict requirement that contracts for the sale of land must be in writing.
Pillay and Another v Shaik and Others

Facts:

Mr. Pillay and Dr. Motlanthe signed standard form agreements to purchase
members’ interests in close corporations which owned units in a sectional title
development called "Lazy Lizard." The developers did not sign the agreements but
acted as if the agreements were valid. The developers later argued that the
agreements were not binding because they had not signed. The trial court ruled in
favour of Pillay and Motlanthe. The full bench of the Pietermaritzburg High Court
overturned that decision. The SCA heard the matter on appeal.

Issue: The main issue was whether the agreements were valid despite the lack of
the developers' signatures. This required the court to determine whether the doctrine
of quasi-mutual assent could apply in this case and whether the requirements for a
valid contract were satisfied. The court also examined if the agreements had to be in
writing.

Rule: The SCA considered the principle that a contract does not have to be in writing
to be valid, unless prescribed by law or by agreement between the parties. The court
also considered the doctrine of quasi-mutual assent which states that a contract can
be valid based on the reasonable belief of one party that the other intended to be
bound, regardless of their actual intention. The elements of quasi-mutual assent
require a misrepresentation of intention, the misrepresentation was made by one
party, and the other party was misled.

Application: The SCA found that the developers, through their attorneys, Mooney
Ford, had represented by their conduct, that the agreements were binding. This
conduct included accepting deposits, requesting guarantees, and communicating
about the agreements as if they were valid. The court determined that the
developers' conduct reasonably led Mr. Pillay and Dr. Motlanthe to believe that the
offers had been accepted. The court held that the developers' conduct amounted to
a misrepresentation of their intention, which misled the purchasers as a reasonable
person would have believed the developers intended to be bound. The court rejected
the argument that the contracts were invalid as they were not signed and held that
the intention of the parties was to be bound by the agreements, and that the
signature was not a prerequisite.

Conclusion: The SCA upheld the appeal, reinstating the trial court's order. The court
concluded that the agreements were valid based on the doctrine of quasi-mutual
assent, finding that the developers were bound by their conduct

Mokone v Tassos Properties CC and Another

Facts: Ms. Mokone leased premises from Tassos Properties CC (Tassos) under a
written lease agreement that included a right of pre-emption (first refusal) to
purchase the property if Tassos decided to sell. The lease was extended multiple
times, with the final extension being made via a handwritten endorsement on the
original lease document. Tassos sold the property to Blue Canyon Properties 125
CC (Blue Canyon) without offering it to Ms. Mokone, despite her right of pre-emption.
Ms. Mokone sought to enforce her right of pre-emption and challenged the sale to
Blue Canyon.

Issues: Whether the right of pre-emption was extended when the lease was
renewed. Whether the handwritten endorsement extending the lease complied with
the formalities required by the Alienation of Land Act. Whether Ms. Mokone could
resist eviction pending the finalization of the litigation regarding her right of pre-
emption.
Rules: A right of pre-emption is a contractual right that must be explicitly renewed if
the lease is extended. The Alienation of Land Act requires that any alienation of land
(including a right of pre-emption) must be in writing and signed by both parties.
Courts have the discretion to stay proceedings (e.g., eviction) pending the outcome
of related litigation if it is in the interests of justice.

Application: The court found that the right of pre-emption was extended when the
lease was renewed, as the endorsement on the lease document indicated an
extension of all terms, including the right of pre-emption. The court held that the
Alienation of Land Act did not apply to the right of pre-emption itself, as it only
applies to the actual sale of land, not the grant of a right to purchase. The court ruled
that it was in the interests of justice to stay the eviction proceedings pending the final
determination of Ms. Mokone's right of pre-emption.

Conclusion: The court ruled in favor of Ms. Mokone, declaring that her right of pre-
emption was extended when the lease was renewed. The eviction proceedings were
stayed pending the finalization of the litigation regarding her right of pre-emption.

Theme 2

LO6: Effect of a Mistake on the Validity of a Contract

 Mistake in Contract: A mistake can affect the validity of a contract, either by

negating consensus (agreement) or by creating an invalid contract. The
impact depends on the type and relevance of the mistake.
 Types of Mistakes:
o Unilateral Mistake: Only one party is mistaken, and the other party is
aware of this mistake. The contract is valid unless the mistaken party’s
mistake affects the agreement.
o Mutual Mistake: Both parties are mistaken about each other's
intentions or terms, leading to dissensus (lack of agreement). A mutual
mistake usually invalidates the contract.
o Common Mistake: Both parties share the same mistaken assumption,
but the contract can be voided if the assumption is found to be
incorrect. This doesn’t involve dissensus.
 Relevance of Mistakes:
 o If a mistake doesn’t affect the decision to enter into the contract, it’s
regarded as irrelevant, meaning the contract remains valid (e.g., Khan
v Naidoo case where the appellant would have signed the document
regardless of the misunderstanding).
o Material Mistakes: These mistakes affect important elements (e.g.,
subject matter, legal consequences) of the contract, leading to a lack of
consensus and possibly invalidating the contract.
o Non-material Mistakes: These relate to motives or reasons for
entering the contract, not affecting material aspects of the contract. A
contract formed under such a mistake is still valid.
 Material Mistakes: Typically involve misunderstandings of critical terms of the
contract, such as:
o Subject Matter Mistakes: Parties are mistaken about the actual
property or goods being bought (e.g., Allen v Sixteen Stirling
Investments).
o Mistakes in Legal Consequences: A party is unaware of significant
terms that affect their legal obligations, such as a suretyship clause
(e.g., Khan v Naidoo).
 Non-material Mistakes: These mistakes usually don’t prevent consensus but
affect a party’s reasons or motives for entering the contract (e.g., Diedericks
v Minister of Lands).

LO7: Differentiate Between Material and Non-material Mistake

Material Mistake:

 Error in Corpore: Relates to the subject matter of the contract, where both
parties have different properties in mind (e.g., Maresky v Morkel).
 Error in Negotio: Relates to misunderstanding the true nature of the contract
itself, such as signing a document without realizing its nature (e.g., Khan v
Naidoo).
 Error in Persona: Mistake regarding the identity of the contracting party,
often material if the identity of the party is vital for the agreement (e.g., Kok v
Osborne).
 Error in Substantia: Mistake regarding a characteristic of the subject matter
but generally non-material in South African law (e.g., Trollip v Jordaan).

Non-material Mistake:

 A non-material mistake does not affect the actual content of the contract but
may influence a party's decision or motive to enter into it (e.g., Diedericks v
Minister of Lands). In this case, the party's misunderstanding regarding the
offer's motive did not negate mutual consent.
 Non-material mistakes are often referred to as errors in motive, where the
parties still reach an agreement on the essential aspects of the contract, and
the contract remains valid despite the error.

Key Takeaways:
  Material Mistakes: They affect the core elements of the contract (subject
matter, legal consequences, or identity of the parties) and often lead to a void
or voidable contract.
 Non-material Mistakes: They pertain to a party's motive for entering the
contract and do not invalidate the agreement if consensus on the material
terms is still present.

LO8: Differentiate between the subjective and the objective approach to mistake

Subjective Approach:

 Focus: This approach emphasizes the actual, internal intention or state of

mind of the parties involved in the contract.
 Mistake: It considers a mistake to be valid if it arises from a party’s subjective
belief or understanding of the terms or agreement.
 Key Element: The real intention of the parties, even if their external behavior
doesn’t reflect it.
 Effect: A party may be excused from a contract if they can prove their actual
(internal) mistake, even if their external actions (such as signing a contract)
suggest otherwise.
 Example: If a person signs a contract under a mistaken belief about a term’s
meaning, their internal mistake is central to whether the contract can be
rescinded.
 Criticism: Often seen as problematic because it can lead to unreliable
evidence (i.e., relying on subjective states of mind), making it harder to
determine what a party truly intended.

Objective Approach:

 Focus: This approach is based on the outward, observable conduct of the

parties, focusing on how their actions are perceived by a reasonable third
party.
 Mistake: A mistake is recognized based on how a reasonable person would
interpret the parties' external behavior or the contract's terms.
 Key Element: The objective manifestations (statements, actions, signatures)
of agreement, rather than the inner intentions of the parties.
 Effect: A party may not be excused for a mistake unless the mistake is visible
from an objective standpoint (i.e., it can be seen or interpreted by a
reasonable person as material and influencing the contract).
 Example: If a party signs a contract but the terms are clearly misrepresented
or different from their intention (visible to a reasonable observer), their
conduct may be deemed a mistake.
 Criticism: May disregard the actual intention of the parties, leading to
outcomes that don’t align with the true purpose behind their actions.
Comparison:

 Nature of Mistake:
o Subjective: Focuses on the internal, personal mistake of the party.
o Objective: Focuses on the outward, observable mistake in the
behavior or agreement.
 Burden of Proof:
o Subjective: The party claiming the mistake must prove their internal
mistake.
o Objective: The mistake is determined based on what an external
observer would reasonably deduce from the actions or words of the
parties.
 Outcome:
o Subjective: Can potentially allow a party to avoid liability based on
their internal state, even if this is not visible to others.
o Objective: Relies on external evidence to determine whether a mistake
occurred and how it affects the contract.
 Contractual Liability:
o Subjective: If a party’s internal mistake is proven, they may be
excused from the contract.
o Objective: A party may not be excused from the contract unless the
mistake is objectively significant and reasonable from an external
perspective.
 Relevance of Agreement:
o Subjective: The real intention of the party is key, even if it is not
expressed or perceived by others.
o Objective: The agreement is interpreted based on how it appears to a
third party, disregarding internal intentions unless expressed outwardly.

Mixed Approach:

 In practice, South African contract law often adopts a blended approach

using both subjective and objective elements, particularly through doctrines
like the iustus error (reasonable mistake) approach.
 Reconciliation: This approach acknowledges that the iustus error
(reasonable mistake) doctrine is a combination of subjective and objective
tests, where the reasonable mistake is seen as a way to assess whether the
internal belief aligns with objective circumstances, blending both views for a
balanced judgment.
LO9: Contractual Impact of a Common Mistake

 Definition:
o A common mistake occurs when both parties to a contract make the
same mistake about a fundamental fact, such as the existence of a
subject matter or a key characteristic, but not about their intentions
(which remain aligned).
o The mistake relates to a past or present fact, and not to the intentions
of either party.
 Key Characteristics:
o Both parties share the same mistaken belief, but it doesn’t concern
their agreement or mutual understanding (consensus ad idem).
o The contract becomes void due to the mistake because it depends on
the truth of a material fact.
o A common error affects the contract’s foundation, leading to no
binding agreement if the fact is absent.
 Example (Dickinson Motors v Oberholzer):
o The plaintiff and defendant were under a common mistaken belief
about the car's identity. The contract was based on the mistaken
assumption about which car was involved, making it void.
 Principles Behind Common Mistake:
o Implied Term Theory: It suggests that parties may implicitly agree
their contract depends on the truth of a specific fact. If that fact turns
out to be false, the contract becomes void, and parties may claim
restitution.
 Effect on Contract:
o If the mistake is fundamental and vital to the transaction, such as
affecting the subject matter of the contract, the agreement is void.
o The courts usually recognize this mistake as an implied term of the
contract. Without this assumption, the contract would not have been
concluded.
 Critical Point: The mistake must relate to a material fact for the contract to
be void. If the mistake is not fundamental, it may only affect motive but won’t
invalidate the contract.

LO10: Identifying Rectification in Cases of Mistake

 What is Rectification?
o Rectification is a process where a written contract is corrected to
reflect the true, common intention of the parties when the document
does not accurately represent the agreed terms.
o The mistake in the document must not reflect the actual agreement
between the parties.
 When can Rectification be Applied?
o When there is an inaccuracy in the written record of the contract that
fails to reflect the actual agreement.
o The party seeking rectification must prove the true intention behind
the contract and that the document does not match that intention.
  Key Features of Rectification:
o Rectification is primarily subjective, focusing on the parties’ actual
agreement and their common intention.
o Courts require proof that the document does not correctly reflect the
parties' true intentions.
 Conditions for Rectification:
o A party must establish that there was a prior agreement that was not
properly recorded.
o If one party mistakenly assumes a term or condition, rectification can
correct that error.
 Example (Milner Street Properties v Eckstein Properties):
o Rectification was granted because the document didn’t properly reflect
the actual intentions of the parties due to a common mistake.
 When It’s Not Allowed:
o If the written contract accurately reflects the parties’ intentions,
rectification will not be granted.
o Rectification is not granted when one party acts fraudulently or fails to
include certain terms intentionally.
 Common Mistake and Rectification:
o If the common mistake is vital to the transaction, the courts may
allow rectification of the document to accurately reflect the parties' true,
common intention.
o Rectification corrects documents to align them with the common
understanding of both parties, even if the written contract was
erroneous.
 Court’s Role:
o Courts will allow rectification when there is disparity between the
contract’s written form and the actual agreement.
o The parties must show that the error wasn’t intentional or due to fraud,
and that it represents a genuine mistake.

Allen v Sixteen Stirling Investments

Facts: Allen signed a credit application form on behalf of a company without

realizing it included a personal suretyship clause. The company defaulted on
payments, and the creditor sought to enforce the suretyship against Allen. Allen
argued that he was under a justifiable error (iustus error), as he believed he was only
signing on behalf of the company.

Issue: Did Allen’s mistaken belief about the nature of the document amount to iustus
error, making the suretyship unenforceable?

Rule: Under the caveat subscriptor rule, a person is bound by their signature unless
they can prove a justifiable mistake. An iustus error defense is valid if the mistake
was reasonable and induced by the other party.

Application: The court found that the structure of the document was misleading, as
it appeared to be only a credit application and did not clearly indicate that signing
also created a personal suretyship. Allen’s expectation, based on industry practice,
was that suretyship agreements were separate documents. Given that he had never
been informed of the clause and the misleading nature of the form, his error was
deemed justifiable.

Conclusion: The appeal was allowed, and Allen was not held liable under the
suretyship. The contract was void due to a fundamental mistake.

Brink v Humphries & Jewell (Pty) Ltd

Facts: Brink, a director of a company, signed a credit application form, which

included a personal suretyship clause. He later claimed that he was unaware of the
suretyship clause and that he had signed only in his capacity as a representative of
the company. When the company defaulted, the creditor sought to enforce the
suretyship against him.

Issue: Did Brink’s failure to read the contract absolve him from liability under the
suretyship, or could he successfully claim iustus error?

Rule: A person who signs a document is generally bound by its terms (caveat
subscriptor), unless they can prove a reasonable and justifiable error (iustus error).
The error must have been induced by the other party, and a reasonable person must
have been similarly misled.

Application: The court found that the credit application form was misleading as it did
not make the suretyship clause sufficiently clear. Additionally, the wording suggested
that the signatory was acting only in a representative capacity. Brink’s experience in
business did not lead him to expect a hidden suretyship clause. The misleading
nature of the document and the failure to bring the suretyship to his attention justified
his mistake.

Conclusion: The appeal was upheld in Brink’s favour. The suretyship was declared
void due to iustus error, and Brink was not held personally liable.

Sonap Petroleum (South Africa) (Pty) Ltd v Pappadogianis

Facts: Sonap (formerly Sonarep) leased property from Pappadogianis for a petrol
station76.... The original lease was for 20 years, commencing on a date to be
certified by Sonarep78. A notarial addendum was later created to fix the
commencement date, but it mistakenly reduced the lease term to 15 years79....
Sonap sought rectification of the addendum or a declaration that it was void due to a
unilateral mistake81. The lower court dismissed the claim81....
Issue: The main issue was whether Sonap was entitled to rectification of the
addendum due to the mistake, or alternatively whether the addendum should be
declared void due to a unilateral mistake on its part81. This involved an analysis of
the principles of rectification, unilateral mistake, and the reliance theory in contract
law83....

Rule: The court considered the principles of rectification, which require proof of a
common intention not reflected in the written contract84.... The court considered the
doctrine of unilateral mistake (where one party is mistaken about a material
term)85.... The court referred to the reliance theory, where the focus is on the
external manifestations of intent and whether a party's conduct led the other party to
reasonably believe that a contract existed on those terms87.... The court also
considered the principle that if a party is aware of a possible mistake by the other
party, they have a duty to enquire and cannot 'snap up a bargain'93....

Application: The court found that rectification could not succeed as Pappadogianis
intended to reduce the lease term84.... The court found that the respondent was
aware of the mistake in the addendum, and that he had a duty to speak, but he did
not98. The court further determined that by signing the document, the appellant
misrepresented their intention to reduce the period of the lease93.... The court then
held that the respondent had not been misled but rather had been aware of the
possibility of the mistake and had intended to take advantage of it98.... Thus, a
reasonable person in his position, would have understood the likelihood of the
mistake99. This finding of lack of consensus meant that the addendum was void pro
tanto99.

Conclusion: The SCA upheld the appeal, setting aside the lower court's order100....
The court declared the addendum void insofar as it purported to reduce the lease
period, finding that there was no consensus, and no common intention to amend the
lease agreement100....
Theme 3

LO11: Apply the elements of misrepresentation that can take place to a set of facts

Definition and Forms of Misrepresentation

 Misrepresentation occurs when a false statement of fact induces a party to

enter into a contract.
 It can be:
o Express – a direct false statement.
o Implied – conduct that creates a misleading impression.
o By Silence – failure to disclose when there is a legal duty to do so.

Types of Misrepresentation

1. Fraudulent Misrepresentation
o Made knowingly, recklessly, or without belief in its truth.
o Courts assess the subjective belief of the representor.
o Example: Selling a car while knowing it has a hidden defect.
2. Negligent Misrepresentation
o Made honestly but without reasonable grounds for belief.
o Requires proof of wrongfulness and causation (Aquilian liability).
o Example: A real estate agent unknowingly giving incorrect information
about zoning laws.
3. Innocent Misrepresentation
o Made with reasonable grounds for belief.
o No fault (dolus or culpa) is involved.
o Example: A seller unknowingly gives incorrect information about a
product.

Distinction Between Misrepresentation and Other Statements

 Warranties vs. Representations

o A warranty is a contractual guarantee; breach allows for damages.
o A representation is an assertion of fact; misrepresentation laws apply.
 Opinions, Future Statements, and Statements of Law
o A misrepresentation must be about a fact, not an opinion or future
intent.
o If an opinion is given without a reasonable basis, it can be misleading.
o A false statement about the law is usually not misrepresentation unless
it implies factual knowledge.
LO12: Discuss the remedies available for improperly obtained consensus and how
voidable contracts operate

Effects of Misrepresentation on a Contract

 A contract induced by misrepresentation is voidable, meaning the misled

party can:
1. Rescind the contract – cancel it and return to pre-contract status.
2. Claim damages – depending on the type of misrepresentation.

Remedies Based on the Type of Misrepresentation

1. Fraudulent Misrepresentation
o Rescission of the contract.
o Delictual damages for financial losses suffered.
o Example: A buyer can sue for losses if they purchased a fake designer
bag under false claims.
2. Negligent Misrepresentation
o Rescission of the contract.
o Delictual damages (measured similarly to fraud).
o Example: If a contractor misleads a client about the quality of materials
used, they may be liable for damages.
3. Innocent Misrepresentation
o Rescission of the contract.
o No general right to claim damages, but some cases allow
restitutional relief.
o Example: If a seller unknowingly misrepresents a product’s features,
the buyer may return it but not claim further damages.

Operation of Voidable Contracts

 A voidable contract remains valid until the misled party chooses to

rescind it.
 Rescission must be done promptly and before affirming the contract.
 Restitution ensures both parties return what they received.
 Some statutory provisions restrict rescission, such as where third-party rights
intervene.

LO13: Explain an omission as a misrepresentation and the relationship between

misrepresentation and mistake

Misrepresentation by Omission (Non-Disclosure)

 A party usually has no duty to disclose information in contract negotiations.

 However, non-disclosure can amount to misrepresentation in certain cases.

When Non-Disclosure Becomes Misrepresentation

 1. Contracts Requiring Good Faith (uberrimae fidei)
o Insurance contracts, partnerships, and fiduciary relationships require
full disclosure.
2. Fiduciary Relationships
o Example: A lawyer must disclose conflicts of interest to a client.
3. Statutory Duties
o Example: Companies Act requires disclosure of financial risks in a
prospectus.
4. Latent Defects
o A seller must disclose hidden defects they are aware of.
5. Change of Circumstances
o If a previously true statement becomes false, it must be corrected.
6. Misleading Half-Truths
o If a statement is literally true but omits material facts, it may be
misleading.

Relationship Between Misrepresentation and Mistake

 Misrepresentation vs. Mistake

o A mistake is a misunderstanding by one or both parties, while
misrepresentation involves an active or implied false statement.
o Example: If a seller lies about a car’s mileage (misrepresentation), but
a buyer mistakenly thinks it has an automatic transmission (mistake),
the legal effects differ.
 Effects on Contractual Validity
o Misrepresentation makes a contract voidable.
o Mistake may make a contract void if it goes to the root of the
agreement.

LO 14: Basis for Claiming Damages for Misrepresentation

Misrepresentation is a false statement of fact made by one party to another, inducing

them to enter into a contract. The basis for claiming damages depends on the type of
misrepresentation:

1. Fraudulent Misrepresentation

 Definition: A false statement made knowingly, without belief in its truth, or

recklessly.
 Legal Basis: Considered a delict (tort), allowing the innocent party to claim
damages under the Aquilian action.
 Damages: The claimant may claim delictual damages for financial losses
caused by the misrepresentation.
 Contract Status: The contract is voidable, meaning the innocent party can
choose to rescind (cancel) it and claim restitution.
2. Negligent Misrepresentation

 Definition: A false statement made carelessly or without reasonable grounds

for believing it to be true.
 Legal Basis: May give rise to a claim for delictual damages if negligence
can be proven.
 Damages: Compensation for actual loss suffered, but not for expected profits.
 Contract Status: The contract remains voidable at the discretion of the
misled party.

3. Innocent Misrepresentation

 Definition: A false statement made without fault, meaning the party believed
it to be true at the time.
 Legal Basis: Not a delict but can still lead to contractual remedies.
 Damages: Typically, no damages are awarded, but the innocent party may
seek rescission (cancellation) of the contract.
 Contract Status: The contract is voidable but not automatically terminated.

LO 15: Duress, Undue Influence, and Bribery

1. Duress (Metus)

 Definition: Improper pressure or intimidation that forces a person into a

contract against their free will.
 Effect on Contract: The contract is voidable at the option of the coerced
party.
 Legal Basis: Duress is a delict and may give rise to a claim for damages
under the Aquilian action.

Elements of Duress (from Wessels' Test):

1. Actual violence or reasonable fear – The party must have experienced real
fear or threat.
2. Threat of considerable harm – The threat must concern serious harm to the
person or family.
3. Imminent or inevitable harm – The danger must be immediate or
unavoidable.
4. Threat must be contra bonos mores (against good morals) – Unlawful or
unethical threats qualify.
5. Moral pressure must have caused damage – There must be some harm
suffered as a result.

Types of Duress:

 Physical coercion (vis absoluta): No contract is formed (e.g., forcing

someone’s hand to sign).
  Psychological coercion (vis compulsiva): The victim has a choice but is
pressured into the contract.

Remedies:

 Rescind (cancel) the contract.

 Claim damages if financial loss occurred.

2. Undue Influence

 Definition: Excessive or improper persuasion that deprives a party of free will

in entering a contract.
 Effect on Contract: The contract is voidable if undue influence is proven.
 Legal Basis: Unlike duress, undue influence relies on a relationship of trust
rather than fear.

Key Characteristics:

1. A relationship of trust or dominance – The victim must have relied on the

influencer.
2. Abuse of influence – The dominant party takes unfair advantage.
3. Imbalance of bargaining power – The victim is pressured into an
unfavorable contract.

Remedies:

 Set aside the contract.

 In some cases, restitution may be granted (restoring the victim to their
original position).

3. Bribery

 Definition: Offering, giving, receiving, or soliciting something of value to

influence the actions of an official or another party.
 Effect on Contract: The contract may be void if bribery influenced its
formation.
 Legal Basis: Bribery is a criminal offense and a ground for contract
invalidation.

Elements of Bribery:

1. A valuable consideration – Money, gifts, favors, or other benefits are

exchanged.
2. An intent to influence – The offer is made to sway a decision or action.
3. Unlawfulness – The act must be contrary to legal or ethical principles.
Remedies:

 The contract may be declared void due to illegality.

 Criminal sanctions such as fines or imprisonment.
 Civil claims for damages by the injured party.

Case Law

ABSA Bank Ltd v Fouche

Facts: ABSA Bank and Fouche entered into a contract for a safe deposit box. The
contract explicitly exempted the bank from liability for loss or damage of the
contents, including theft. A burglary occurred, and Fouche’s valuables were stolen.
She sued ABSA Bank, alleging that the bank had fraudulently or negligently failed to
disclose inadequate security measures.

Issue: Was ABSA Bank liable in delict for failing to disclose security shortcomings,
and did this omission amount to fraudulent or negligent misrepresentation?

Rule: A duty to disclose arises if the information is exclusively known by one party
and its disclosure would be recognized as essential by reasonable people in the
circumstances. Liability for non-disclosure depends on whether it was fraudulent or
negligent.

Application: The court found that ABSA Bank was not under a duty to disclose the
absence of specific security measures, as the contract clearly placed the
responsibility for loss on the customer. The absence of an alarm and night guards
was not deemed a material fact that had to be disclosed. Additionally, the customer
did not indicate that security concerns were pivotal to her decision to contract with
the bank.

Conclusion: The appeal was upheld in favor of ABSA Bank. The court ruled that the
bank was not liable in delict as there was no duty to disclose the specific security
arrangements.
Phame (Pty) Ltd v Paizes

Facts: Phame (Pty) Ltd sought to purchase the defendant’s shareholding in a

company, primarily interested in the income-producing property owned by the
company. During negotiations, the defendant’s agent provided written representation
that the annual liability on the property was R846,000, when it was actually R14,376.
The contract was concluded, but Phame soon discovered the misrepresentation and
sued for a reduction in the purchase price.

Issue: The main legal issue is whether innocent misrepresentation can entitle a
buyer to a reduction in the purchase price under the actio quanti minoris (a legal
action for a reduction in price).

Rule: In contract law, a misrepresentation is a false statement of fact made by one

party to another, which induces that party to enter into a contract. Misrepresentations
can be innocent, negligent, or fraudulent. The actio quanti minoris allows a buyer to
claim a reduction in the purchase price when the item sold is defective or not as
represented.

Application: In this case, the defendant’s agent provided incorrect information

regarding the annual liability on the property. Although the misrepresentation was
innocent (i.e., not made fraudulently or negligently), it induced Phame to enter into
the contract under false pretenses. The significant discrepancy between the
represented liability and the actual liability affected the value of the property and the
terms of the agreement.

Conclusion: The court held that even an innocent misrepresentation can entitle the
buyer to a reduction in the purchase price under the actio quanti minoris. Phame was
therefore entitled to a reduction in the purchase price due to the misrepresentation
regarding the property's annual liability.
Learning Unit 3: Contractual Capacity

Theme: 1

1. Legal Capacity vs. Contractual Capacity

Legal Capacity

 Definition: The ability to hold rights and duties as a legal subject.

 Applies to: All natural and juristic persons (e.g., individuals, companies).
 Source: Derived from legal personality, regardless of age or status.
 Note: Having legal capacity does not automatically mean the ability to enter
into contracts.

Contractual Capacity

 Definition: The ability to create, amend, or end rights and obligations

through contracts.
 Requirements:
o Must be able to form a legally valid intention (will).
o Must understand the nature and consequences of the act.
o Must be mentally sound, sober, and of sufficient age.

2. Categories of Capacity for Natural Persons

(i) Persons Without Contractual Capacity

These individuals cannot understand or appreciate the consequences of their

actions.

 Infants (<7 years):

o Cannot enter into contracts.
o Guardian must act on their behalf, limited to estate management.
 Mentally Ill Persons:
 o Contracts are void if incapacity is proven.
o Proof may include court referral or medical diagnosis.
o CPA: Contract is void if supplier knew of the mental illness.
 Severely Intoxicated Persons:
o Must be unable to understand the contract at all.
o Mere intoxication is not enough; contract is void ab initio if proven.

(ii) Persons With Limited Contractual Capacity

These individuals need assistance or consent to contract.

 Minors (7–18 years):

o Require guardian’s consent (can be prior, concurrent, or
subsequent).
o Court may intervene if consent is unreasonably withheld.
o Emancipated minors have full capacity in specific situations.
o Can seek restitutio in integrum for prejudicial contracts.
 Married Persons:
o Out of Community of Property: Full contractual capacity.
o In Community of Property: Need spousal consent for certain
transactions under the Matrimonial Property Act.
 Insolvents:
o Lose control over estate.
o Need trustee's consent for asset transactions.
 Prodigals:
o Declared by court; require curator's consent.
o Contracts without consent are voidable.

(iii) Persons With Full Capacity

All natural persons who do not fall into the above categories.

3. Juristic Persons and Contractual Capacity

  Examples: Companies (PTY Ltd), close corporations, universities,
associations.
 Exclusions: Partnerships and trusts (no legal personality — contracts are
entered by trustees or partners).
 Limitations:
o Cannot enter into certain contracts (e.g., marriage).
o Capacity governed by founding/constitutional documents.
o Ultra vires rule: Acts beyond the entity's powers are void.

4. Consequences of Incapacity

Person Type Effect on Contract

No Capacity (e.g. infants, mentally ill) Contract is void.
Limited Capacity (e.g. minors, prodigals) Contract is voidable.
Juristic Person (Ultra vires act) Contract is void.

Theme: 2

1. Types of Formalities

(a) Statutory Formalities

Required by law for either validity or enforceability.

1. Formalities for Validity

 Failure to comply = contract is void.

 Examples:
o Alienation of Land: Must be in writing and signed (Alienation of
Land Act).
o Suretyship: Must be signed by the surety (General Law Amendment
Act).
o Donations: Must be in writing and signed by donor in presence of
two witnesses.
2. Formalities for Enforceability Against Third Parties

 Valid between parties but not enforceable against third parties unless
formalities are met.
 Examples:
o Ante-Nuptial Contract (ANC): Must be notarised and registered.
o Long leases (over 10 years): Must be registered to bind third parties.

3. Electronic Transactions (ECTA)

 Section 12: A data message qualifies as “in writing” if it is accessible for

future use.
 Validity: Most contracts can be concluded electronically.
 Exclusions: Land sales, long leases (>20 years).
 Electronic Signatures: Accepted, but advanced e-signatures preferred.

(b) Self-Imposed Formalities

1. Contract Creation

 Parties can require a contract to be in writing and signed.

 If writing is a condition for validity, no binding contract until formalities are
met.
 Case law: Goldblatt v Fremantle – Court upheld the intention of the parties.

2. Variation and Cancellation Clauses

 Non-Variation Clauses: No oral changes allowed.

o SA Sentrale Ko-op v Shifren – Upheld the clause (pacta sunt
servanda).
 Non-Cancellation Clauses: Written consent required for termination.
o Must be linked to a non-variation clause (Impala Distributors v Taunus).

3. Limits to Shifren Principle

  Restrictive Interpretation: Applies only to bilateral amendments.
 Public Policy: Unenforceable if it leads to injustice (Brisley v Drotsky).
 Estoppel: A party may be prevented from relying on the clause.

4. Non-Waiver Clauses

 Prevent parties from informally giving up rights under the contract.

 Commonly found in modern agreements.

Theme 3: ILLEGALITY

1. Meaning & Importance of Legality

 A contract must be legal in its formation, performance, and object to be valid.

 Pacta sunt servanda is limited where agreements conflict with public policy.
 Post-1994, public policy is informed by constitutional values like dignity,
equality, and justice.

2. Statutory Illegality

Key Considerations

 Legislative intent determines whether a contract is void.

 Express prohibition: renders a contract void.
 Implied prohibition: inferred through penalties or legislative goals.

Examples

 Sale of prohibited goods (drugs, firearms).

 Prohibited clauses under:
o National Credit Act (NCA) s90
o Consumer Protection Act (CPA) s51
o National Gambling Act (NGA)

Contracts in Fraudem Legis

  Contracts aiming to circumvent laws are void.

3. Common Law Illegality

Definition

 Contracts that violate good morals, public policy, or constitutional values.

Judicial Approach

 Courts only strike down contracts in clear cases of public harm.

Examples

 Prostitution, sham marriages, fraud.

 Maseko v Maseko: sham marriage = void.

Leading Cases

Case Principle
Sasfin v Beukes Contracts contrary to public policy are void
Barkhuizen v Napier Enforcement must align with fairness and public policy
Beadica v Trustees Balance between fairness and pacta sunt servanda
Brisley v Drotsky Courts avoid overriding clear contract terms

4. Effects of Illegality

Legal Consequences

 Void ab initio: contract has no legal force.

 Ex turpi causa: no action arises from an illegal cause.
 Par delictum rule: equal fault = no restitution unless unjust enrichment occurs.

Relaxation of Rule
  Jajbhay v Cassim: Courts may relax the rule to prevent injustice.

5. Severance of Illegal Terms

Illegal provisions may be severed if:

1. Grammatically distinct.
2. Collateral to the contract’s main purpose.
3. Contract would still be made without the illegal term.

6. Valid but Unenforceable Contracts

Wagering Agreements

 Not illegal or immoral, but unenforceable if against public interest.

Restraints of Trade

 Valid unless unreasonable.

Test (Basson v Chilwan)

1. Is there a protectable interest?

2. Is that interest threatened?
3. Does the restraint outweigh freedom of trade?
4. Are there overriding public policy concerns?

Key Cases

 Magna Alloys: restraints presumed valid unless proven unreasonable.

 Protectable interests = trade secrets, client info (not training or investment).
Theme 4: IMPOSSIBILITY

1. General Rule

 If performance is objectively impossible, no contract arises.

 Contract must be capable of performance when concluded.

2. Types of Impossibility

Type Description Legal Effect

Objective No one can perform (e.g. house burns) Contract is void
Subjective Specific party can’t perform Still enforceable; breach possible
Factual Physical impossibility Void
Practical Extremely difficult/costly to perform Treated as objective impossibility
Legal Law prohibits performance May be void or unenforceable

3. Timing of Impossibility

 Initial impossibility: Exists at time of contract → no obligations arise.

 Supervening impossibility: Occurs after contract → obligations end.
 Fault-based impossibility: Breaching party liable for damages.

4. Exceptions

Assumption of Risk

 A party aware of the risk may still be liable.

Warranty of Performance

 If performance is guaranteed, the party remains liable even if impossible.

CERTAINTY

1. General Rule

 Contractual terms must be certain or determinable.

 Uncertain terms invalidate obligations.

2. Sources of Uncertainty

Vague Terms

 Phrases like “reasonable price” may be too vague unless clarified.

Pacta de Contrahendo (Agreements to Agree)

 Invalid if essential terms are undetermined.

 Valid if determinable via market standards or third-party input.

Lack of Mechanism

 Contract must include objective standards, third-party mechanisms, or

formulas to resolve uncertainty.

3. Consequences of Uncertainty

 Uncertain obligations are invalid.

 Severable uncertain terms can be removed without affecting the rest of the
contract.
 Courts favour interpretations that preserve contracts (ut res magis valeat
quam pereat).
Case and Journal Summaries

🔹 1. GF v SH and Others 2011 (3) SA 25 (GNP)

 F: Applicant sought to set aside a warrant of execution for arrear

maintenance, claiming an oral variation of the divorce settlement agreement.
 I: Can an oral agreement vary a written contract with a non-variation clause?
 R: Shifren principle — oral variations are invalid where a non-variation clause
exists.
 A: Court upheld Shifren, following Brisley v Drotsky. Oral agreement was
invalid despite changed circumstances.
 C: Warrant of execution stands. Non-variation clause upheld.

🔹 2. Brisley v Drotsky 2002 (4) SA 1 (SCA)

 F: Landlord sought eviction despite tenant’s claim of an oral amendment to

the lease.
 I: Can good faith or fairness override a non-variation clause?
 R: The Shifren principle requires that all variations be in writing and signed.
 A: Court rejected reliance on bona fides as a basis to override non-variation
clause. Upheld contractual certainty.
 C: Non-variation clause enforced. Eviction granted.

🔹 3. Nyandeni Local Municipality v Hlazo 2010 (4) SA 261 (ECM)

 F: Dispute over enforceability of a non-variation clause amid claims of

unfairness.
 I: Can public policy and constitutional norms justify a departure from the
Shifren principle?
  R: Shifren is binding but may be relaxed in exceptional cases involving abuse
or injustice.
 A: Court accepted that in specific cases, strict enforcement may be unjust and
contrary to public interest.
 C: Opened the door for a more flexible, context-driven application of Shifren.

🔹 4. Maphango v Aengus Lifestyle Properties 2011 (5) SA 19 (SCA)

 F: Landlord terminated leases to increase rent. Tenants challenged

termination on public policy grounds.
 I: Was the termination lawful, or did it violate tenants' rights under the
Constitution?
 R: Termination clauses are enforceable if no express or tacit restriction exists
and public policy is not offended.
 A: No tacit term barring the landlord’s action was proven. Termination didn’t
violate Section 26(3).
 C: Lease termination upheld. Public policy not violated.

🔹 5. Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

 F: Challenge to the validity of a restraint of trade clause in an employment

contract.
 I: Are restraints of trade presumptively invalid unless proven reasonable?
 R: Restraints of trade are valid and enforceable unless they are unreasonable
and against public policy.
 A: Shifted burden to the party resisting the restraint. Rejected English
presumption of invalidity.
 C: Restraint clause upheld. Landmark decision affirming contractual freedom.

🔹 6. Reddy v Siemens Telecommunications (Pty) Ltd 2007 (2) SA 486 (SCA)

 F: Employee resigned and joined a competitor, breaching a restraint clause.
 I: Can potential use of confidential information justify enforcing a restraint of
trade?
 R: Restraints are enforceable if they protect a legitimate interest and are
reasonable in scope and duration.
 A: Court held that risk of disclosure justified enforcement. Confidential info
was a protectable interest.
 C: Restraint upheld. Appeal dismissed.