THE FORMATION OF A VALID CONTRACT PDF

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STUDY UNIT 2: THE FORMATION OF A VALID CONTRACT 2.1 Introduction The law requires that certain formalities must be met before a contract would be considered as valid and enforceable. These requirements are consensus, contractual capacity, legal possibility, and physical possibility of performance. There is also the fifth requirement which is the recognition of other formalities; this requirement is considered together with the first requirement (consensus). If one of these requirements is missing, the contract would not be considered as a valid contract and unenforceable in the court of law. These requirements are discussed in detail below, but it is important to first understand what a contract is? 1. A Contract is an agreement between two or more persons with the intention of creating legally enforceable obligations. Obligations are duties and responsibilities that arise from a valid contract. Not all agreements are contracts; however, all contracts are agreements. An obligation may arise from a contract, delict or under unjustified enrichment. Therefore, one can talk of contractual obligations only after a valid agreement must have been concluded. Contractual obligation must be distinguished from statutory obligations - which does not arise from a contractual relationship but is created by law. 2. Freedom to contract: Freedom to contract is considered to be one of the cornerstones of the modern law of contract. This is because any person with contractual capacity is generally free to choose with whom and on what grounds he or she wants to contract with another. However, this freedom may be limited in certain circumstances. 3. Contracting electronically: A network exists as soon as two or more computers or electronic transmission devices are connected in order to share information. The potential of e-commerce trading is enormous. However, consumers and businesses are not yet confident with many online transactions. 3.2 Requirements for the formation of a valid contract

1. Consensus: For a contract to be considered as valid, there must be an agreement between the contracting parties. In other words, there must be meetings of the minds between the parties. The offer and acceptance must be understood by the contracting parties. An offer and acceptance must be adhering to the following rules: a) One of the parties must have made an offer. b) The offeror must have communicated the offer to the offeree. c) The offer must not have been revoked or have lapsed before acceptance. d) The offer must be accepted in the prescribed manner. e) The offer must be accepted by an intended offeree. f) The acceptance must be communicated to the offeror in the prescribed manner, within the prescribed time and at the prescribed place. There would be no valid contract in the absence of consensus. Parties to a contract must agree on the objectives of the contract. This is also referred to as ‘agreement by consent’, ‘true agreement’, ‘meeting of the minds’, or ‘coincidence of the wills’. This means that every party to the contract must have the serious intention to create rights and duties to which each of them must respect and that the parties must make their intention known to one another 2. Contractual Capacity: Each party to the contract must have the capacity to act, which means that he or she must be legally capable of performing the particular act which gives rise to the formation of the contract. Not all natural persons are free to enter into binding agreements. The following may not have the capacity to enter into a valid contract: a) A minor: A minor is an unmarried person below the age of eighteen. The minor would not have the capacity to enter into a valid contract. Minors under the age of seven are known as infants and lack contractual capacity and minors between the ages of seven and eighteen are known as pupils and

have limited contractual capacity. They may enter into a valid contract with the assistance of a major or an elder person. b) Married persons: Marriages can be concluded in community of property with no ante-nuptial contract or out of community of property where parties register an ante-nuptial contract. c) Mental Deficiency: If a person’s mental condition is such that he or she is not able to understand or appreciate the nature or consequences of his or her conduct at a level which is sufficient to enable him or her to manage the particular affair and make rational decisions, it stands to reason that such a person cannot form the necessary will to conclude a valid and enforceable contract. d) Influence of alcohol or drugs: A person who is in such a state of intoxication caused by alcohol or drugs that he or she does not appreciate the nature and consequences of his or her actions, is incapable of forming a will. Legally, therefore, such a person is incapable of performing juristic acts. e) Prodigals: If, by virtue of a person’s propensity to squander his or her own money in an irresponsible and extravagant manner or the person is unable of managing his or her own affairs competently, a High Court may, on application by an interested party, declare such a person a prodigal. A curator will then be appointed to manage the prodigal’s affairs on his or her behalf. f) Insolvent: The person may not contract to dispose of property attached to the insolvent estate. A person’s capacity to act is not influenced merely by insolvency; a person’s capacity to act will be influenced by certain provisions of the Insolvency Act 24 of 1936. 3. Legal possibility of performance: The agreement must be legally possible. This implies that the agreement, as well as the rights and duties that are created, must be permitted by the law, in other words, it must be lawful or legal. The agreement must be possible to be enforced in the court of law, for example, the court cannot enforce an agreement for X to swallow a chair.

4. Physical possibility of performance: The agreement must be physically possible for performance. In other word, it must be objectively possible to perform the rights and duties arising from the contract and the performance must be possible, for example, it is physically impossible for John to lift move a house. Such agreement can not be enforced in the court of law. When a contract is physically impossible to be performed, it would also be legally impossible for the court to enforce the contract. 5. Recognition of other formalities: the writer does not consider this requirement as the fifth since formalities must be met (consensus) for the formation of a valid contract. 2.3 Conclusion The study unit outlined in greater detail the definition of a contract, other aspects in a contract like freedom to contract and contracting electronically have been discussed. The rules on offer and acceptance have been outlined. Persons that may not be considered to have contractual capacity have also been elaborated on. The necessary requirements for a valid contract which must be met for the contract to be valid and enforceable have been discussed. Once the court concludes that it is physically impossible to perform an obligation in a contract, the court would also consider such agreement legally unenforceable....