Contract notes, problems and research tasks PDF

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RHODES UNIVERSITYAN INTRODUCTION TOGENERAL PRINCIPLESOF CONTRACTLEGAL THEORY 1INTRODUCTION TO LAW2021GENERAL INTRODUCTIONThis part of the Introduction to Law course deals with selected aspects of the South African law of contract at a basic level. It is not intended to give you a full overview of co...

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RHODES UNIVERSITY

AN INTRODUCTION TO GENERAL PRINCIPLES OF CONTRACT LEGAL THEORY 1 INTRODUCTION TO LAW

2021

GENERAL INTRODUCTION This part of the Introduction to Law course deals with selected aspects of the South African law of contract at a basic level. It is not intended to give you a full overview of contract law: you will get the detail when you do the Contract courses in Legal Theory 3. The primary focus now is to introduce you to some of the skills required for studying law, using the contractual concepts as a vehicle for achieving that purpose. This course requires students to understand some of the contractual rules and principles, and to apply that knowledge to given facts, by recognising and solving the problems that the facts raise. In most instances you will find the information you require in this handout; but there will be instances in which you will have to extract the information from cases or textbooks to which you have been referred. You are not limited to the information given to you in class. Throughout the course you will be expected to perform certain tasks on your own. You could, of course, take short cuts by relying on others to do the work for you; but that is likely to lead to two consequences, maybe more: the first is that if you are caught relying on another’s work, both of you could be charged with plagiarism, a serious offence at university that will have serious consequences for your future career; the second is that you would not have acquired the skills to pass the course, and/or to cope with the demands of Legal Theory 2. Please do not place yourself in a position in which unpleasant consequences are likely to result. A comment on the lecturing method and what is expected from you in this course: You will notice that a number of factual situations (problems) are set out in the handout for each topic. We will go through these factual situations in class to see how the legal principles set out in the handout can be used to solve the problems. You are expected to prepare for the lecture by at least: • reading the principles contained in the handout; and • acquainting yourselves with the exercises that will be discussed in class; • attempting to answer the questions in the exercises. If you have been given a research task for the lecture, then that task must be completed and submitted to your tutor before the lecture. The research tasks are important and you will be expected to know the cases in detail: the facts, how the judges came to their conclusions, and the legal principles that can be found in them. Although this is formative assessment (not for marks) you may be assessed on them later for marks. If you wish to do well at the end of the year, you should also consult textbooks on the law of contract for additional information. lt1_law of contract

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We will not go over the handout material in the lectures. Rather, it is assumed that you can read and learn by yourselves. We will discuss the problem questions and, where appropriate, refer to the handout material. Questions can be directed to me via email ([email protected]) or on the tab on RU Connected called ‘Questions and answers about the Contract course’. On-line lectures will be put up on RU Connected on the Tuesday and Thursday of each week. Prior to each lecture you must have: • Studied ahead the Contract notes as directed in the table below. • Answered the questions in the problem exercises set for that day. • Completed the research task set for that day, if there is one.

Lecture Date

Notes

Problems to be discussed in…

1

Tues 27 July

2

Thurs 29 July

Pages 5-11

Lecture 2

3

Tues 3 August

Pages 5-11

Lecture 3

4

Thurs 5 August

Pages 12-15

Lecture 4

5

Tues 10 August

Pages 12-15

Lecture 5

6

Thurs 12 August

Pages 16-25

Lecture 6

7

Tues 17 August

Pages 16-25

Lecture 7

8

Thurs 19 August

Pages 16-25

Lecture 8

9

Tues 24 August

Revision

Lecture 9

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Research task to be completed and submitted before the lecture

Maseko v Maseko 1992 (3) SA 190 (W)

Command Protection Services v South African Post Office Limited [2013] 1 All SA 266 (SCA)

Outcomes This section of the course emphasises problem-solving and legal reasoning skills. At the end of the section students should be able to: • • • • • • •

Find case law via the Internet. Understand and explain some of the principles which apply in the law of contract. Extract principles from selected cases. Recognise some of the factual situations in which the law of contract applies. Apply the principles and the case law to selected factual situations. Give reasoned advice on whether or not a claim on a stated case would be successful. Write short essays in which you explain principles relating to a particular topic.

Summative assessment questions may take three forms: • •

•

General discussion-type questions that test knowledge, e.g. “Write a note on...” Problem-type questions similar to those discussed in class in which you will be expected to advise someone on his or her legal position based on a given factual situation. Case notes in which you will be expected to analyse and discuss a particular case, and give your opinion on the importance of the decision.

Important text: Dale Hutchison and Chris James-Pretorius (editors) The Law of Contract in South Africa 3 ed (2017) Oxford University Press: Cape Town. This book is available as an e-book on EBSCO. When you find the book click on "Available online", and then click on "link to Ebsco e-books". Please note that Rhodes has a license for only three concurrent users. If anyone needs any help with this see the EBSCO & Proquest eBook instructions that I have posted on RU Connected. For those students in Makhanda there are several copies on short loan in the Law Library If you have any questions about the course, please feel free to discuss them with me. It will be best to contact me on [email protected] or via the Q and A forum mentioned above.

Professor J Campbell (July 2021)

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CONTRACTS, AGREEMENTS AND PROMISES

Hutchison et al Wille’s Principles of South African Law (8ed) 409: “A contract is an agreement between two or more persons which gives rise to personal rights and corresponding obligations; in other words, it is an agreement which is legally binding on the parties.” Bosman 434: “An agreement entered into with the intention that it should have legal consequences.” Hosten 702: “An agreement made with the intention of creating obligations.” Hutchison and Pretorius (eds) The Law of Contract in South Africa (2017) 6: “A contract may be defined as an agreement entered into by two or more persons with the intention of creating a legal obligation or obligations.” A contract, therefore, is a voluntary agreement in terms of which one person undertakes to assume some obligation towards another, intending to be legally bound. A contract is an agreement which gives rise to legally enforceable obligations. Not all agreements are contracts, in the sense that some are not intended by the parties to have legal consequences, and some are by their nature unenforceable. The courts will not attach legal obligations to an agreement which the parties do not intend to be legally binding. Thus the first question to ask in determining whether we have a contract is whether the parties intended to enter a legally-binding agreement. Other contracts are unenforceable because the law will not give effect to certain types of agreement: eg gambling agreements, agreements which are illegal in relation to the manner of the execution of the action to be performed, and agreements which are contrary to public policy.

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Comments: 1

A contract requires at least two persons, even if the obligations rest on only one of them. There can, however, be more than one creditor and/or debtor.

2

The basis of contract is the agreement to be bound: both parties must seriously intend to create mutually binding obligations.

3

Contract and obligations are also distinct concepts: the contract gives rise to the obligations. One relies on the contract to enforce the obligations, and the performance of the obligations may discharge the contract. In some cases, however, the obligations under a contract are continuing.

4

A contract is a voluntary agreement: nobody can be forced to enter into a contract. If there is compulsion, the contract will be voidable. Conduct which we are required to perform (eg, paying one’s income tax) cannot be contractual in origin.

5

Once the contract is entered into, the parties are bound to perform unless (a) released of their obligations by the other party, or (b) they discharge their obligations by performance. If a party fails to perform in terms of the contract, that party will be in breach of contract.

ESSENTIAL ELEMENTS OF A CONTRACT, “VALID” AND “INVALID” CONTRACTS

ESSENTIAL ELEMENTS OF A CONTRACT $ $ $ $ $

There must be consensus (agreement) between the parties on the rights and duties which they wish to create. Each party must have the capacity to enter into the contract, ie they must have been legally competent to do so. The agreement must be lawful. The rights and duties which they agree to must be physically possible to perform. The parties must comply with any formalities that the law requires.

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“VALID” AND “INVALID” CONTRACTS A valid contract is one to which the courts will give effect if the debtor fails to discharge his duties by ordering either performance or compensation, or by releasing the creditor from his counter-obligations. An “invalid contract”, on the other hand, is one to which the courts will not give effect. Invalidity can arise in the following ways: 1. where there is no true agreement (e.g., where the parties are mistaken as to the subject-matter of the contract); 2. where the parties lack contractual capacity; 3. where performance is impossible or illegal; 4. where parties have not complied with prescribed formalities, where these are required; 5. where the agreement is vague. The point to be grasped at this stage is that, although parties may reach agreement, the law sets the above additional requirements before such agreement can give rise to a valid contract. If one or more of the above-mentioned elements is missing, then the agreement is said to be void, i.e. invalid. An agreement is voidable if all the elements are present, but there is an outside reason, cause or flaw at the time of the agreement which affects one of them. This means that one of the parties has a choice − either to continue with the contract, in which case it is a valid contract, or to have it set aside. Examples of factors which render an agreement voidable are misrepresentation, duress and undue influence.

REQUIREMENTS FOR A VALID CONTRACT In addition to the general requirements of consensus, which will be considered later, there are three other requirements for a valid contract: performance must be possible, legal, and certain. If certain formalities are required for the specific contract, these also need to be complied with.

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CONTRACTUAL CAPACITY INTRODUCTION The ability to enter into a contract is known as contractual capacity. Contractual capacity refers to the power to acquire rights and incur obligations under a contract. The general principle is that any person is free to enter into a contract, subject to the provisions of the law. In practice, however, the law limits the contractual capacity of certain persons, and denies it completely to others. CATEGORIES OF CONTRACTUAL CAPACITY As far as contractual capacity is concerned, we therefore find three categories of persons: 1

Persons with full contractual capacity. These include persons over 18 years of age and bodies corporate. (Section 17 of the Children’s Act 38 of 2005 amends the position in relation to natural persons).

2

Persons with limited contractual capacity. These persons may conclude contracts only if they are assisted by other persons. These include minors above the age of 7 years and prodigals.

3

Persons with no contractual capacity. These include insane or intoxicated persons and minors below the age of 7 years. Where such persons enter into contracts, their contracts will be void. Only their curators can enter into valid contracts on their behalf.

CONSEQUENCES OF CONTRACTS ENTERED INTO WITH PERSONS WITH NO OR LIMITED CONTRACTUAL CAPACITY A contract entered into by a person with no contractual capacity is void ab initio. Where A exceeds his limited contractual capacity (e.g. a minor acts without the guardian’s consent) the contract is voidable at A’s instance, i.e. B is bound to the extent that the contract is to the advantage of A. A can then elect to enforce the contract or abandon it. Where B performs and enriches A, then B can reclaim on the basis of unjustified enrichment. Where A intentionally misleads B into thinking that he has full contractual capacity, it would seem that A is bound by the contract.

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POSSIBILITY OF PERFORMANCE

No contract generally arises where the obligation which one of the parties assumes, is impossible to perform. Thus, if I undertake to sell you my horse, which unbeknown to me has died at the time I so agree, no contract arises. Here we are dealing with initial impossibility of performance, that is at the creation of the contract and this should be distinguished from supervening impossibility of performance, which refers to the situation where performance becomes impossible after the conclusion of the contract, e.g. the horse dies after the contract is concluded. (Supervening impossibility of performance is one way in which a valid contract can be terminated.) The general rule stated above is, however, subject to the following provisos: a)

Performance must be objectively impossible i.e. the inability must not arise from the particular circumstances of the debtor, but must be such that it would be impossible for anybody to perform it.

b)

“Impossibility” means that the performance is beyond that which could reasonably be expected of anyone in the circumstances. It means more than mere difficulty.

c)

The impossibility must not have been brought about by the defaulting party.

d)

The defaulting party must not have knowingly assumed the risk of circumstances arising that render his performance impossible.

Effect of impossibility: Subjective impossibility of performance does not prevent the creation of an obligation. If the debtor eventually does not perform, he or she may be liable for breach of contract. If performance is objectively impossible when the agreement is concluded, no obligation arises in respect of that performance.

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LEGALITY Performance must not only be possible, it must also be legal. Generally, therefore, an illegal (or unlawful) agreement will not create obligations. In certain circumstances it has become accepted that an illegal agreement will constitute a contract, but one which is not enforceable by law. “Illegal” in this context need not mean “criminal”, but is used in reference to agreements that are perceived to be incompatible with general social mores. More often it simply means that there are reasons of public policy for not enforcing the agreement in question. Thus the sanction that an unlawful contract attracts is not necessarily a criminal penalty, but may simply be a refusal to enforce it. A contract may be illegal because the agreement or its circumstances are outlawed (e.g. a sale of cocaine) or because the performance undertaken is illegal. It may also be illegal and unenforceable because it is made for an unlawful purpose, for example, a promise by one partner in an illegal venture to pay his share of the losses arising out of the venture. Unlawful contracts are usually divided into those that are prohibited by statute and those prohibited by the common law or those that are in conflict with public policy. Specific examples of unlawful contracts 1

Those in breach of statutory provisions

Include sale or distribution of alcohol, drugs, precious stones or firearms without a licence, trade in certain commodities or practising certain professions without the necessary certificates. 2

Wagering agreements

A wager takes place where the parties create an uncertainty which would not otherwise have carried with them potential loss, and create obligations contingent on the outcome. A wager is lawful only if permitted by legislation or if it involves a sufficient measure of skill (e.g. a raffle requiring an answer to a question). Failing this such wagering agreements give rise to moral or “natural” obligations, but such obligations will not be enforced by a court of law. The fact that a natural obligation comes into being means that a debt is created which may validly be paid, and if paid, may not be reclaimed. But one cannot sue someone for payment if he or she fails to pay the debt as agreed.

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3

Agreements in restraint of trade

An agreement in restraint of trade is one in terms of which someone is restricted in his freedom to carry on his trade, profession or some other economic activity. Such agreements create a conflict between two social interests: the principle that people should abide by their contracts, on the one hand, and the principle that they should be free to carry on trade and thus contribute to the general welfare. The general principle is that a restraint is enforceable unless the court is convinced that it is unreasonable: Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A). The burden rests on the covenantor (the person who maintains that he/she should not be bound by the restriction on freedom of trade) to show that the restraint is unreasonable. In deciding on the reasonableness or otherwise of a restraint agreement, the court will consider the following factors: a) b) c) d) e)

the nature of the interest protected; the time and area for which the restraint is imposed; the interests of both parties and of the public in general; whether the parties contracted on an equal footing; whether a danger exists that trade secrets could be disclosed to a new employer.

FORMALITIES

Although consensus forms the basis of a contract, in certain circumstances particular formalities are necessary for the validity of a contract. These may either be imposed by one of the parties; (e.g. contract to be in writing and signed) or, by the law (e.g. an antenuptial agreement must be in writing and registered). Non-compliance with formalities, whether imposed by the parties or by statute, generally results in invalidity of the contract, and performance rendered in terms of it can be recovered.

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CONSENSUS INTRODUCTION Consensus means “agreement about the same subject or thing, unanimity, unity of thought”. Consensus, then, is the basis of every contract: a contract comes into existence if the parties are agreed (ad idem) on creating betwe...