24
LAW OF CONTRACTPART ITHE REQUIREMENTS OF A VALID CONTRACT
Unit 1: Introduction to the Law of Contract and basic
concepts.
Learning outcomes:After completion of this unit, the student
should be able to:
1. Discuss the historical roots of the Law of Contract in South
Africa.2. Define the term contract3. Define the term obligation4.
Classify and discuss the different types of obligations.5.
Distinguish between the terms contract and obligation6. Identify
and discuss the characteristics or terms of a contract.7.
Distinguish between the terms void and voidable8. Analyze the
Social and Constitutional values embedded within the Law of
Contract.9. List the requirements for a valid contract.
Study:
1. Van der Merwe et al. Contract. General Principles. Third
Edition. Chapter 1.
2. From List of cases:
Afrox Healthcare v Strydom 2002 (6) SA 21 (SCA) and
Brisley v Drotsky 2002 (4) SA 1 (SCA)
Alternative study:
1. Christie. The Law of Contract in South Africa. Fifth Edition.
Chapter 1.
2. Bhana et al. Students guide to the Law of Contract. Second
Edition. Chapter 1.
1. Historical introduction
According to Christie, the law of contract is of fundamental
importance in the modern world, because it is woven into and
inseparable from every form of economic activity.[footnoteRef:2]
Because of this fact, international business relations are governed
to a large extent by the principles of the law of contract. The
Roman-Dutch law adopted the principle of treating each and every
agreement made seriously and deliberately as a contract, obviously
influenced by the canon law (specifically the ius gentium, or law
of mankind), and by a notion that the honouring of promises was
inherent in peoples of Germanic origin.[footnoteRef:3] Grotius in
the 17th century exclaimed that the rule stipulatio = pactum =
contract and the Roman distinctions between these concepts no
longer existed. [2: Christie 2006:1] [3: Christie 2006: 6]
The South African concept of contract According to Brand
JA[footnoteRef:4], South African Private Law is essentially
uncodified, and at the heart of this uncodified system lies
seventeenth-century Roman-Dutch law.[footnoteRef:5] When the Dutch
occupied the Cape of Good Hope in 1652, this system was adopted in
the Cape. In 1806, however, the Cape was colonised by the British,
and consequently aspects of British law were incorporated into our
legal system. [4: Justice of Appeal Brand is an Honorary Professor
in the Faculty of Law, University of the Free State.] [5: Brand
2008: 71]
In 1826 it had to be decided whether English law should replace
Roman-Dutch law in the Cape Colony. The Supreme Court in the Cape
likewise had to decide whether to adopt a basically English or
basically Roman-Dutch concept of contract.[footnoteRef:6] In the
case of Louisa and Protector of Slaves v Van den Berg (1830),
neither counsel nor the court made any reference to English law,
but instead chose to rely on Voet, Grotius and Groenewegen.
However, throughout the next century, English concepts such as the
parole evidence-rule were continuously incorporated into South
African law of contract. [6: Christie 2006: 8]
The importance of the contract in modern day international
business
Ryan Murray, senior lecturer at the Nottingham Law School,
provides a very apt description of the vital importance of modern
day law of contract:
The law of contract is truly remarkable. In fact, it is
difficult to think of an area of law that plays a more important
part in everyday life. Literally millions of contracts are formed
each day and few of us will make it through 24 hours without
entering into a contract. A bus ride to work, the purchase of a
sandwich at lunchtime or a ticket to see a film at the cinema,
these are all simple examples of contracts that pass us by without
much thought as to the legal principles that govern these
activities. The reason so many of us are unaware of these
contractual principles is that in the vast majority of cases there
will be no need to challenge the contract. Most contracts are
performed without difficulty with both parties meeting their
contractual obligations. Despite the number of contracts that are
made every day only a tiny proportion will be challenged by the
parties and out of these an even smaller amount will ever reach the
courts. However, it is also important to understand the fundamental
principles of contract law as it not only provides the framework
for resolving disputes when things go wrong under a contract, but
it also provides a framework that allows individuals to regulate
their own contractual obligations.[footnoteRef:7] [7: Murray 2008:
1]
2. The term contract
No two definitions of a contract are the same. However, the
following definitions by different writers will indicate that
certain elements are ever-present.
Note to student: It is expected that you familiarize yourself
with all the definitions of a contract provided herein. In any
question in a test or exam, you will be required to provide all the
different definitions provided below, except where indicated
otherwise. Van der Merwe et al define a contract as follows:
A contract is a promise to fulfill an obligation.
A contract is an obligationary agreement
An agreement will be a contract only if the parties intend to
create an obligation or obligations
Not all agreements constitute contracts. The difference is that
a contract is a legal fact, in other words something which has its
basis in empirical reality and has legal consequences.
Christie, another South African writer, defines a contract as
follows:
An agreement (arising from either true or quasi-mutual assent)
which is, or is intended to be, enforceable at law.
Kerr provides a somewhat complex definition, or rather
explanation of what a contract entails:
In contract the legal bond, the iuris vinculum, is formed by the
parties themselves (or their agents), and, within the limits laid
down by law, the nature of the obligations is determinable by them.
In some cases their agreement is actual (meaning both parties
understand and concur in all the provisions of a simple sale of
goods), in others apparent (meaning one of the parties, being in a
position to understand what is written on a form containing the
proposed provisions of a contract, but without coming to any
agreement, signs the form without bothering to read it), and in yet
others partly actual and partly apparent.[footnoteRef:8] [8: Kerr
1989: 3]
Bhana et als definition is simpler, and reads as follows:
Contracts are agreements between parties who have the intention
to create legal rights and duties between them and which are
legally binding upon the parties.[footnoteRef:9] [9: Bhana et al
2009: 2]
Major, an English writer, defines the term contract as
follows:
A contract is defined as a legally enforceable agreement. This
means that a contract is enforceable in the sense that there is a
legal remedy available in case one party should fail to comply with
his promise under the agreement.[footnoteRef:10] [10: Major
1990:123]
It is evident from the abovementioned definitions that academics
have similar notions of what the contract as a legal document
entails. Two words that pop up ever so often in the mentioned
definitions are agreement and obligation. Consequently we will take
a look at what is meant by the latter.
3. The term obligation
Van der Merwe et al explain the concept of an obligation as
follows:
Obligation is a term derived from the Latin obligare which means
to tie or to bind together. It refers to a legal bond (vinculum
iuris) which binds together two legal subjects. The relation
entails (on the one hand) a right to performance (this right
belongs to the creditor), and (on the other hand) a duty to render
the performance (which rests on the debtor). The nature of the
performance is related to the delivery of a thing (dare) or the
doing of something (facere) or the refraining from doing something
(non facere).The creditors right is called a personal right,
because the subject-matter or object of the right is a performance
by another person. This right is also called a claim The debtors
duty to perform is sometimes called a debt. An obligation, then,
entails both a right and a duty.[footnoteRef:11] [11: Van der Merwe
et al 2007: 2]
Bhana et al add hereto the following:
A legal obligation is a legal tie or relationship (vinculum
iuris) between two people which means that one party has a duty to
give a certain performance, while the other party has a
corresponding right to receive the performance. Every obligation
therefore involves one right and one duty.
One can see from these definitions that there are always at
least two parties to an obligation. As already touched on above,
the party who has the duty to deliver the performance is called the
debtor, while the party who has the right to receive the
performance is called the creditor. It is important to remember
that obligations do not arise from contracts only, but may also
arise from delicts and something like unjustified enrichment, which
are not dealt with in detail in this module.
4. Different types of obligations
4.1. Natural obligations (obligationes naturales):
Those obligations that cannot be enforced in a court of law,
such as the unassisted contract of a minor.
4.2. Civil obligations (obligationes civiles):
Those obligations that may be enforced by a court of law, such
as obligations arising from a contract of service or a contract of
sale.
5. The difference between contract and obligation
Obligations may simply be described as the consequences of a
contract.In order to conclude that a contract has come into
existence, one has to rely on certain historical facts. No
subsequent events can change these historical facts. At most, its
legal consequence, the obligation, can be terminated by
fulfillment, release or cancellation. The existence or operation of
an obligation may depend on a supposition, a condition or a modus,
whereas the contract itself is not made to depend on such
qualifying terms. Contracts are thus clearly distinguishable from
their consequences, namely obligations. A term such as breach of
contract is actually erroneously applied, as breach in fact refers
to the obligation, rather than the contract.[footnoteRef:12] [12:
Van der Merwe et al 2007: 8]
6. Identifiable characteristics of the contract:
According to Bhana et al, obligations created by a contract are
determined by the terms of the contract. These terms can be divided
into three sub-classes:
6.1. Essentialia: Those elements that identify and differentiate
the contract from other types of contract.
Example: In a contract of sale, the essentialia will be the
price and the thing that is sold.If the essentialia for a
particular type of contract are not present, the contract will
still be valid, but it wont be that specific type of contract
anymore.
6.2. Incidentalia: Clauses that make provision for residual
matters for which the parties wish to make special provision or to
alter or exclude the naturalia.
Example: The parties to a contract of sale can include a clause
that the thing is sold voetstoots or as is. This means that the
seller does not give a warranty against latent defects in the thing
sold. In other words, the parties exclude this naturalia of the
contract of sale.
6.3. Naturalia: The legal principles of the law of contract that
will apply to the contract in the absence of clauses to that effect
in the contract itself. These are the terms automatically attached
by law to a specific type of contract without them having to be
inserted by the parties.
Example: One of the naturalia of a contract of sale is a
warranty against latent defects, meaning that the buyer will be
able to cancel the contract or claim a price reduction if the thing
sold has a latent (hidden) defect. This term will automatically
form part of the contract of sale, even if the parties do not
specifically agree thereon.
7. Void or voidable?
A contract is void ab initio (from the beginning) and has no
legal effect whatsoever if the constituent requirements are
absent.
A contract is valid but may be declared void if an applicant
proves successfully that certain factors influenced his/her mind to
enter into a contract, e.g. duress, misrepresentation or undue
influence.
8. Principles and policies of the Law of Contract: Social and
Constitutional Values
Study in particular Van der Merwe et al. pp. 11-18
The view that a contract is constituted by agreement signifies
the recognition of individual autonomy as a philosophical premise.
Freedom of contract means that an individual is free to decide
whether, with whom, and on what terms to contract.The principle of
consensuality (consensus) requires concurrence of at least two such
decisions for a valid contract. However, autonomy also entails that
the decision-maker must accept responsibility for his/her
considered actions. The principle of pacta sunt servanda, in turn,
requires exact enforcement of contractual obligations created in
circumstances which are consistent with freedom of contract and
consensuality. (This doctrine entails the freedom to enter into a
contract. Former Justice of Appeal JJ Hefer, who is also an
extraordinary professor of law at the Department of Private Law at
the University of the Free State, mentions that the pacta sunt
servanda-principle is probably the most important foundation of the
South African law of contract.[footnoteRef:13] However, it is
inevitable that this principle sometimes results in situations
where contractants are bound by agreements which may be to their
detriment. In the case of SA Sentrale Ko-op Graanmaatskappy Bpk v
Shifren en Andere[footnoteRef:14] Steyn JA held that parties to a
contract were bound by a stipulation in their contract that no
variation in the specific contract should be of force or effect
unless it was in writing. In this case, two parties entered into a
lease contract, which contained a so-called non-variation- clause,
which stipulated that no variation to the contract would be valid
if not in writing. The lessee wanted to sub-let the property in
question, and got the oral permission from the lessor to do so. The
lessor decided to cancel the contract on the grounds that the
non-variation-clause was not complied with. The court decided that
the oral permission was insufficient. [13: Hefer 2004: 1. ] [14:
1964 4 SA 760 (A)]
This may sound like hard law, especially since the decision was
reached in 1964, about thirty years before the new constitution,
which was initially known as Act 108 of 1996. However, it is
interesting to note that the Shifren-decision was upheld in the
case of Brisley v Drotsky[footnoteRef:15] (which can be found in
the KON 214 list of cases, and which must be studied in detail).
[15: 2002 (4) SA 1 (SCA)]
The fact that an obligation is recognized by law, and receives
its effect through the agencies of the state, implies that
contracting parties, when exercising their private autonomy, are
subject to the values of society. The very principles of morality
or socio-economic expediency may in particular circumstances
require that less weight be attached to the ideals of individual
autonomy and freedom of action. The rules of the law of contract
reflect the attempts in the legal system to achieve a balance
between relevant principles and policies so as to satisfy
prevailing perceptions of justice and fairness, as well as
economic, commercial and social expediency. For the abovementioned
reason, the law of contract has a dynamic and ever-changing nature
(Van Zyl, J in Janse van Rensburg v Grieve Trust 2000 (1) SA 315
(C) on 323-324). Chapter 2 of the constitution has specific
implications for the abovementioned position: The basic rights of
the constitution are a concrete expression of principles, policies
and values which prevail in South African society. Many of the
rights awarded to the individual in Chapter 2 of the constitution,
are also inherent to the law of contract: freedom to contract,
private autonomy, public policy and interest, the boni mores, bona
fides, reasonableness and fairness, and equality. Because of the
fact that the constitution is the supreme law of the country, and
the Bill of Rights is the most recent expression of the values
upheld in South African society, precedent set by appeal courts
after the constitution came into effect has been said to bind lower
courts.
9. Requirements for a valid contract
Over the next few lectures, we are going to look at the
requirements for a valid contract. There are six of them, each of
which will be discussed in detail. They are the following:
9.1 Consensus9.2 Formalities9.3 Possibility of Performance9.4
Legality9.5 Certainty9.6 Capacitated parties
Unit 2: The Requirement of Consensus
Learning outcomes:After completion of this unit, the student
should be able to:
1. Explain what is meant by the basis of a contract and how it
is formed.2. Explain what is meant by the term consensus.3. List
and discuss the three theories for determining the presence of
consensus.4. Explain what is meant by the objective approach for
determining consensus.5. Explain what is meant by the term mistake
and identify the solutions thereof.
Study:
1. Van der Merwe et al. Contract. General Principles. Third
Edition. Chapters 2, 3 and 4.
2. From List of cases:
Trollip v Jordaan 1960 1 PH A 25 T
Spindrifter v Lester Donovan 1986 1 SA 303
Du Toit v Atkinson Motors 1985 2 SA 893
Allen v Sixteen Sterling Investments 1974 4 SA 174
De Jager v Grunder 1964 1 SA 446 AD.
Alternative study:
3. Christie. The Law of Contract in South Africa. Fifth Edition.
pp. 22-24
4. Bhana et al. Students guide to the Law of Contract. Second
Edition. Chapter 3.
1. The Basis of a contract[footnoteRef:16] [16: Van der Merwe et
al 2007: 19-21]
The basis of a contract is either consensus, which means an
actual meeting of the minds of the contracting parties, or the
reasonable belief by one of the contractants that there is
consensus. Roman jurists did not accept that each and every simple
agreement (nudum pactum) was a legally binding agreement
(contractus) to the extent that it created an obligation in law.
For an agreement to be a binding one they usually required the
presence of a special reason for the creation of an obligation
(causa obligationis). In Roman times, verbal contracts were only
binding if expressed in very specific words. Some agreements were
binding only if accompanied by the delivery of a thing (contractus
re), whereas another type of agreement was binding if an entry of
(fictitious) payment had been made in the creditors account book
(contractus litteris). Some agreements, however, were legally
binding although they were not accompanied by special causae
obligationum. These were the consensual contracts (contracts ex
consensus) which were binding simply because the parties to the
agreement concurred on the essential parts of their pact.
Contractus ex consensus played a vital role in economic discourse
as they reflected some of the most common economic transactions,
such as sale, lease and employment.
Roman jurists accepted the fact that a meeting of will or
intentions could be the basis of a binding contract, although they
did not elevate consensus to the general basis of all
contracts.
Germanic law did not even recognise consensus to the extent to
which it was accepted in Roman law. The Germanic conception of a
binding agreement seems to have required either some final cause or
completed performance. In the course of time, though, the binding
force of consensus as a general value in what was regarded as
proper conduct came to be accepted as part of the philosophy of
natural law, and the doctrines of the Catholic Church. Adherence to
agreements because one had consented to them acquired a moral or
religious connotation inasmuch as it was regarded as improper or
sinful not to abide by ones word. For reasons both moral and
economic, medieval merchants also accepted consensuality as a basis
for adhering to their agreements. Thus consensuality became a part
not only of moral philosophy and canon law, but also of the lex
mercatoria or law merchant, the law that was internationally
accepted by merchants and traders.
The outcome of this was the acceptance of the maxim pacta
servanda sunt as one of the guiding principles of the law of
contract, particularly in view of the reception of Roman law into
the systems of law which obtained in Western Europe. On the one
hand, the emphasis fell on pacta, in other words that mere
agreements could be binding without recourse to form. On the other
hand, the words servanda sunt indicated that it was imperative to
honour simple agreements.
By the seventeenth century, the scene was set for the acceptance
in the law of Holland of the principle that mere consensus was
legally binding.
2. The Term Consensus
Consensus refers to the so-called meeting of the minds of
contractants, and can be said to be the basis of a contract. A
contract comes into existence of the parties are agreed (ad idem)
on creating between themselves an obligation (or several
obligations) as well as on all its particulars, such as its content
and subsidiary features.
If A wants to sell his car to B, a contract will arise only if
they both agree on the object which A must deliver (the particular
car) and the price which B must pay in return, as well as on
subsidiary matters pertaining to the obligations and which the
parties regard as important (such as the fact that B must get a
loan from a recognised financial institution).
Reasons for binding parties in terms of a contract include the
following:
Intention of the contractants; Legal certainty; Good faith;
Protection of reasonable expectations; Creation of undue risks.
The general theory that has developed for determining consensus
is called the Will Theory.
A contracting partys will is formed by the following:
Motives:
(a) Own motive: Plays no role in the question of whether
consensus exists or not. The other party is innocent, and did not
influence you in entering into the contract.
(b) False establishment of a motive: Plays a role in the
question of whether consensus exists- it leads to the voidability
of a contract. False information moved you to enter into the
contract: Misrepresentation.
(c) Motive still unknown: The other parties have no knowledge of
your motive to enter into contract. This may lead to a situation
where two parties have totally different motives at the signing of
the contract. The argument exists that in this instance, no
consensus exists.
Decision:
(a) Decisions are reached after having established your
motive.
(b) A legal will requires the parties to reach consensus on all
aspects of the contract.
(c) The other party still carries no knowledge of the motive
and/or decision, because it hasnt been conveyed yet.
Declaration of will:
(a) Known as offer and acceptance- declarations.See Van der
Merwe et al. Chapter 3
3. The three theories for the determining of consensus
It has already been mentioned that the Will Theory developed for
the determining of whether consensus is indeed present at an
agreement, and subsequently whether a valid contract exists.
However, because of critique against the Will Theory, two other
theories for the determining of consensus have developed, namely
the Declaration Theory and the Reliance Theory.
3.1. The Will Theory
According to the will theory, consensus is found in the
so-called meeting of the minds, or consensus animorum animo
contrahendi.
The elements of consensus are as follows:
Contractants must be agreed on the consequences they wish to
create. They must intend to bind themselves legally. They must be
aware of their agreement.
Advantages of the will theory:
In a society which accepts the free expression of individual
will and the personal autonomy of each individual as primary
values, the will theory has the obvious advantage that it can be
expressed in terms of principles which are fundamental to the
society.
The theory has strong historic roots in the Roman-Dutch Law.
The theory functions satisfactorily as an explanation for
contractual liability where the parties are in actual
agreement.
It also functions satisfactorily in the case of absence of
liability where they disagree on some fundamental aspect of their
intended contract.
Critique against the will theory:
The theory experiences problems with explaining
misrepresentation and error. It fails to explain the doctrine of
representation satisfactorily. It fails to explain the doctrine of
reservatio mentalis. This theory differs from case law in instances
concerning the moment of reaching of consensus in contracts
concluded inter absentes. It is difficult to prove in court. The
theory follows a subjective approach.
The Will Theory was preferred in the following cases:
Swart v Vosloo 1965 1 SA 100 AD op 104H:
A lease is a mutual contract flowing from agreement of the minds
of the parties, a concursus animorum animo contrahendi.
Jonnes v Anglo African Shipping:
The general rule is that the court should determine what the
true intention of the parties was.
Maize Board v J Jackson:
As a general rule parties to a contract intend it to be exactly
what it purports to be. Not infrequently, however, they may
endeavour to conceal its true character. In such a case, when
called upon, a court must give effect to what a transaction really
is and not what in form it purports to be. (Ponnan, J on 2[1])
PW Michau v The Maize Board:
He conceded, however, that he had no idea of the price of
day-old chickens or poultry and that, although in terms of his
agreement with Rainbow the price at which the chickens were sold
would be decisive as to whether there was a profit or not, the
price of chickens was to no importance to him at the time. He said
he simply placed his faith in Rainbow to give him an added value on
his maize.
Although the abovementioned four cases need not be studied in
detail, students must have a thorough understanding of what the
courts said in each case.3.2. The Declaration Theory
According to the declaration theory consensus is to be found in
the objective co-inciding declarations of the contractants. Van der
Merwe et al states the following: According to the declaration
theory contractants are bound to their contract not on the basis of
their subjective, co-inciding intentions but on the basis of their
objective, coinciding declarations of will. This theory only takes
into account a partys declaration of will, and not its
intentions.
Advantages of this theory:
Wessels, J stated the following in the case of South African
Railways & Harbours v National Bank of South Africa Ltd 1924 AD
704 op 715-716:
The Law does not concern itself with the working of the minds of
parties to a contract, but with the external manifestation of their
minds. Even therefore if from a philosophical standpoint the minds
of the parties do not meet, yet, if by their acts their minds seem
to have met, the law will, where fraud is not alleged, look to
their acts and assume that their minds did meet and that they
contracted in accordance of what the parties purport to accept as a
record of their agreement. This is the only practical way in which
courts of law can determine the terms of a contract.
Critique against the abovementioned theory:
It is of a subjective nature. It causes problems with simulated
acts. Contracts are forced upon parties containing clauses that
they did not want. With the doctrine of representation the
following question arises: Whose declaration should enjoy
preference: The principles or the representatives. In cases of
contracts inter absentes, the problem arises that as soon as the
declaration of acceptance has been made, the offeror is bound,
although he/she is not even aware of the acceptance.
The following case must be studied in detail from the case
list:
Trollip v Jordaan 1960 1 PH A 25 T
Courts of law can only judge from external facts whether this
has or has not occurred. In practice therefore it is the
manifestation of their wills and not the unexpressed will which is
of importance.
The following case need not be studied in detail, but students
should take note of the following excerpt:
Union Government v Smith:
we must take the grammatical and ordinary sense of the words
used in order to ascertain what the parties meant, even though we
may doubt whether this was the intention of the parties at the
making of the contract. It is our first duty to see what the
parties intended by the language used.
3.3. The Reliance Theory
The reliance theory determines that consensus is established in
the bona fides of the inter partes-relationship. This bona fides
and the consequential reliance on the information provided by the
other contractant must be protected.Van der Merwe et al states that
this theory determines that a contract is based on the intention of
one party to the contract and the reasonable reliance on his/her
side that the other party has the same intention. The reliance
theory is seen as supplementary to the will theory: If the two
parties have corresponding intentions, consensus is present and it
is not a prerequisite to determine whether one of the parties had a
specific idea of the intention of the other party. If one of the
parties erred regarding the intention of the other party, and for
that reason theres no consensus, the reliance theory states that if
one of the parties relied on the idea that consensus was present, a
contract was created.Thus, a contract is created where actual
consensus exists, or where the intention of one of the parties to
an agreement reasonably relied on the intention of the other
party.In the first instance, the contract is based on actual
consensus, and in the second instance it is based on the reliance
that consensus exists.
Critique against the reliance theory:
It has a subjective nature. Extrinsic evidence must be used to
determine the reliance. It is expected from a party who possesses
more knowledge to make available all information to the other party
regarding the fine print.
The following two cases must be studied as authority from the
case list
Spindrifter v Lester Donovan 1986 1 SA 303
Du Toit v Atkinson Motors 1985 2 SA 893
4. The Objective Approach for determining Consensus The
objective approach to the determination of consensus stems from the
shortcomings of previous three theories. Consensus is attached to a
party or both parties, after consideration of all relevant and
proven evidence before the court. By following an objective
approach, a court will look at all evidence regarding inner
intention, the outer version thereof and any reliance on the
behaviour of the other party. The effect of the objective approach
is the merging of the previous three theories. One isnt applied at
the cost of the other. This approach provides solutions for the
determination of consensus at the doctrine of representation and
contracts inter absentes.
The following case must be studied as authority from the case
list
Allen v Sixteen Sterling Investments 1974 4 SA 174
I accept that our law follows a generally objective approach to
the creation of contracts.
The following case need not be studied in detail, but students
should take note of the following excerpt:
Springvale v Edwards 1969 1 SA 464:
that the test to be applied in deciding whether consensus
exists, is an objective one, is firmly established in both South
Africa and Rhodesia.
5.Mistake (Error)
The German jurist Von Savigny distinguishes between 2 types of
mistake:
a. MATERIAL MISTAKE:
Mistake is already present at the declaration of will.
The parties are not on the same wavelength- one refers to lease
and the other to buying.
Dissensus exists from the beginning, and no contract is
created.
b. ERROR IN MOTIVE:
In this instance, consensus exists with the declaration of will,
but the error exists in the motive.
There are two types of error in motive:
i. Unilateral mistake:
The contracting party is the cause of his own mistake. There is
consensus at the declaration of will and a contract comes into
existence.
The following cases must be studied as authority from the case
list:
Spindrifter v Lester Donovan 1986 1 SA 303Du Toit v Atkinson
Motors 1985 2 SA 893
ii. Misrepresentation or mistake caused by the other party:
The contracting party is misled by the other contracting party
as far as his motive is concerned, and because of this he is led to
make a declaration of will.
-The misrepresentation can be intentional, negligent or
innocent.
The following case must be studied as authority from the case
list:
De Jager v Grunder 1964 1 SA 446 AD.
SOLUTIONS FOR THE PROBLEM OF MISTAKE:
The iustus error-doctrine:
-This doctrine implicates that someone who mistook some element
of a contract, may withdraw from such contract if he/she can prove
that the mistake was made innocently, bona fide and reasonable.
Maritz v Pratley.
The Estoppel-doctrine:
-The guilty misrepresentor is bound by/held liable for his
misrepresentation.
c. Some interpretory-rules:
The contra preferentum-rule: Determines that a clause in a
contract must be interpreted keeping in mind who the author of such
clause is.
The parole-evidence rule: Determines that the written documents
are the only source of the contracts contents. No extrinsic
evidence is allowed.
Unit 3Consensus obtained by improper means (I)
Learning outcomes:After completion of this unit, the student
should be able to:
1. Discuss the background of consensus obtained by improper
means.2. Explain the term misrepresentation in detail.3. List and
discuss in detail the elements of misrepresentation. 4. Identify
and discuss in detail the two different types of
misrepresentation.
Study:
1. Van der Merwe et al. Contract. General Principles. Third
Edition. Chapter 4.
2. From List of cases:
Preller v Jordaan 1956 1 SA 483 (A).
Bayer South Africa (Pty) Ltd v Frost 1991 (4) SA 559 (A).
Phame v Paizes 1973 (3) SA 397 (A).
Labuschagne Broers v Spring Farms 1976 2 SA 828 T
Alternative study:
3. Christie. The Law of Contract in South Africa. Fifth Edition.
Chapter 7.
4. Bhana et al. Students guide to the Law of Contract. Second
Edition. Chapter 10.
5. Kerr. The Principles of the Law of Contract. Fourth Edition.
Chapter 11
1. Introduction
The requirement of an actual or apparent meeting of the minds of
contractants as the basis of a contract means that the intention or
will of the parties is a central pivot in the juristic act
concerned[footnoteRef:17]. The expression of such a will may be
influenced by any number of factors: Fear, economic necessity,
influence by someone in whom he places great trust, or simply
because he desires to change his economic and social
situation[footnoteRef:18]. The law does not does not take
cognisance of each and every factor which influences an expression
of will. It is in keeping with the values protected by the
constitution and with good faith, and in the public interest, that
serious expression of intent must be adhered to and given their
intended legal consequences[footnoteRef:19]. Some factors accept
that a contractant is allowed to undo the consequences of the
agreement because it was defective in the sense that it was not
conceived in the free and unfettered manner regarded by the law as
necessary for the expression of a contractants individual autonomy.
In such circumstances the law may regard a will as so defective as
to not have any legal relevance at all. No juristic act would then
result. This is not the state of our modern law, however: The law
has rather opted for an approach that under the above circumstances
actual agreement will ensue, but may sometimes be voided at the
behest of the contractant whose will has become
defective[footnoteRef:20]. Where consent has been obtained
improperly, the injured party may rescind the contract and may
often claim a financial award. The exact content of the remedies is
applicable to the juridical nature of the act whereby consent is
received as contractual misconduct or a delict. Traditionally, the
law approached the matter of voidability on the assumption that one
of two specific grounds for rescission must be proved, namely
misrepresentation or duress. The courts eventually also accepted a
third ground for rescission called undue influence, which
intitially received a fair amount of criticism, especially in the
case of Preller v Jordaan 1956 1 SA 483 (A). In this case, which
must be studied in detail for the purposes of this module, the
argument in the court a quo was that undue influence was an English
legal principle which had no peer in Roman-Dutch Law, and did not
constitute any ground for the remedy of restitutio in
integrum[footnoteRef:21]. The general consideration which underlies
the voidability of a contract is the fact that consensus has been
obtained in a manner which, in the eyes of the law, is
improper[footnoteRef:22]. [17: Van der Merwe et al 2007: 102] [18:
Van der Merwe et al 2007: 103] [19: Van der Merwe et al 2007: 103]
[20: Van der Merwe et al 2007: 103] [21: See Fagan, JAs decision at
489. ] [22: Van der Merwe et al 2007: 104]
One has to of course consider exactly what is meant by the term
improper. There is no definite or watertight division between the
three grounds for rescission of a contract, and particularly
between duress and undue influence[footnoteRef:23]. In the case of
Savvides v Savvides[footnoteRef:24] the applicant requested that a
power of attorney which she had executed in favour of her husband
be rescinded on the ground of what she called duress: her husband
had threatened to leave the matrimonial home permanently. According
to the court, the threat in question might has well have
constituted undue influence, since duress and undue influence may
sometimes overlap. In the case of Malilang v MV Houda
Pearl[footnoteRef:25], a party to a contract of employment wished
to rescind the contract on the ground of economic duress in the
sense of commercial pressure, inasmuch as it had been threatened
with the blacking of its ship unless it entered into a contract.
The court once again pointed to the analogy between duress and
undue influence[footnoteRef:26]. The viewpoint has in fact been
advanced that undue influence is part of a wider concept in
Roman-Dutch law, allowing redress to a contractant whose
circumstances have been abused by the other party[footnoteRef:27].
[23: Van der Merwe et al 2007: 104] [24: 1986 (2) SA 714 (A)] [25:
1986 (2) SA 714 (A)] [26: Van der Merwe et al 2007: 104] [27: Van
der Merwe et al 2007: 105]
In the case of Plaaslike Boeredienste (Edms) Bpk v Chemfos
Bpk[footnoteRef:28], the appellate division actually went beyond
the existing three grounds for rescission. The court in this case
held that where a contractant had bribed the agent of his
co-contractant to persuade the latter to contract, the principal
was entitled to rescind the contract. Although the term fraud was
advanced as the relevant ground for rescission, the court found
that the act of persuasion through bribery did not constitute fraud
as such but did amount to an improper means of obtaining
consensus[footnoteRef:29]. This approached raised the distinct
possibility that the traditional specific grounds for rescission
might be subsumed under one general principle to the extent that
there would be but a single ground for rescission due to a prior
defective will, namely improper obtaining of
consensus[footnoteRef:30]. [28: 1986 (1) SA 819 (A)] [29: Van der
Merwe et al 2007: 105] [30: Van der Merwe et al 2007: 105]
In the case of Extel Industrial (Pty) Ltd v Crown Mills (Pty)
Ltd[footnoteRef:31], the appeal court held that commercial bribery
was a ground for rescinding the contract, but accepted that such
bribery and other specific grounds for rescission can be classified
dogmatically as allowing avoidance of a contract because consensus,
though real, was improperly procured. [31: 1999 (2) SA 719
(SCA)]
Although a few cases have been mentioned above, students only
need to study the case of Preller v Jordaan in detail. A thorough
understanding of how the other cases fit into the discussion is
essential, however.
2. Misrepresentation
2.1. Introduction
The decision of a prospective contractant to conclude a contract
is often brought about by a false representation by or on behalf of
the other party to the negotiations. The misled party is said to
labour under a mistake. If such mistake is material, no consensus
and subsequently no contract arises[footnoteRef:32]. However, a
representation frequently causes an error in motive. Although not
material, and therefore not excluding consensus, such an error does
affect the quality of the consensus. [32: Van der Merwe et al 2007:
105]
A is the registered owner of a farm. B wants to buy the farm
registered in As name. A points out the farm to B in such a manner
as to create the false impression that the farm includes certain
afforested land. B purchases the farm in this belief. He signs a
deed of sale in which the farm is described in terms of the sellers
title deed. Bs decision to purchase was influenced by an error in
his motive, inasmuch as he wrongly believed that the land which was
pointed out to him (and which he believed to include the afforested
portion) which was the land described As title deed. If B can prove
that his consent was obtained improperly, because it was given as
the result of an actionable misrepresentation by A, he is entitled
to relief by way of rescission or a financial award, depending on
the circumstances.
2.2. Representation and contractual terms
A representation that occurs during precontractual negotiations
can be made a part of the consensus between the parties and as such
becomes a term of the ensuing contract[footnoteRef:33]. An example
would be if the representation is warranted to be true. In the
abovementioned example, the parties may have intended that A was
binding herself absolutely by the representation that the land
which was being sold included the afforested portion- a warranty
being a special contractual term which requires strict adherence
from the contractant who gives the warranty[footnoteRef:34]. Should
the representation turn out to be false, the contract will have
been breached and the normal consequences of breach of contract by
way of breach of warranty will follow. Whether a representation
amounts to a contractual term or whether it merely causes an error
in motive without becoming a part of the contract must be decided
according to the intention of the parties[footnoteRef:35]. [33: Van
der Merwe et al 2007: 106] [34: Van der Merwe et al 2007: 106 fn
24] [35: Van der Merwe et al 2007: 106]
2.3. Elements of misrepresentaion
2.3.1. Act or conduct[footnoteRef:36]: [36: Van der Merwe et al
2007: 108-109]
The act must be a representation made by the contractant or by
someone for whose acts he can be held liable, such as an employee
acting within the scope of his employment or someone who is
executing a mandate. A misrepresentation by a third party which
misleads one of the contractants cannot be the basis of a claim
against the other contractant. The party who has been misled must
then have recourse against the third party.
A representation is any conduct which creates a particular
impression on the mind of the other contractant. The conduct may be
a commission (positive act) or an omission (refraining from
committing a positive act). A representation by commission may be
made in words (orally or in writing) or by conduct alone.
For example, a declaration that a wrist-watch is made of solid
gold is a representation, but so is the act of displaying the watch
amongst objects of solid gold.
Also, fencing off two sections of land as a single unit amounts
to a representation that they are indeed one entity.
A representation by omission usually occurs when someone omits
to disclose information within his knowledge or refrains from
removing a wrong impression which to his knowledge exists in the
mind of the other contractant. Such an omission will only be
actionable if it is wrongful (wrongfulness is a separate element of
misrepresentation discussed below), and this depends on whether
there was a duty to act positively. The representation must be
false or at least inaccurate. Consequently, a representation which
is correct and accurate can never found liability for
misrepresentation. A representation which is not wholly false may
nevertheless be so incomplete or only partially true as to be
inaccurate.
For example, if the question is raised Has any proposal for
insurance ever been declined or cancelled? and the answer thereto
is No proposal for insurance has ever been declined, this leaves
the possibility that a proposal for insurance has indeed been
cancelled. The mentioned answer to the mentioned question is thus a
half-truth.
A representation may relate directly to facts of the past or
present, such as the previous occurrence of an accident or ones
present state of health. It may also be expressed in an opinion,
particularly concerning the future, such as financial advice about
the potential return on an investment (Study in this instance the
case of Bayer South Africa (Pty) Ltd v Frost 1991 (4) SA 559 (A),
where the misstatement referred to by the court may have been
interpreted as an opinion). The argument goes that an opinion
cannot be an actionable misrepresentation. Van der Merwe et al
disagree with this argument. They state the following:
Quite apart from the fact that opinions and similar statements
more often than not contain some statement of fact as to the
representors state of mind or knowledge, the question whether a
representation was a mere opinion or prediction bears upon the
quality and reasonableness of the act or conduct, and thus relates
to wrongfulness[footnoteRef:37] [37: Van der Merwe et al 2007:
109]
2.3.2. Wrongfulness
Test for wrongfulness[footnoteRef:38]: [38: Van der Merwe et al
2007: 10938 Van der Merwe et al 2007: 110-111]
As a delict, misrepresentation involves wrongful conduct. An act
is wrongful if it is contrary to the norm or standard of acceptable
conduct in a particular society, often referred to as the boni
mores. The most recent reference to the latter term can be found in
the case of ABSA Bank Ltd v Fouche 2003 (91) SA 176 (SCA). Such an
act is considered unreasonable in the eyes of the community because
it offends against the standard for reasonable or socially
acceptable conduct. A representation that occurs during the course
of contractual negotiations will be wrongful if it infringes a norm
protecting a contracting party against being misled.
Commission and omission[footnoteRef:39]: [39: ]
The wrongfulness of a representation by commission is more
readily apparent than the wrongfulness of an omission. The latter
will only be wrongful if the representee breached a duty to act
positively in order to prevent a wrong impression from arising or
to remove an existing wrong impression. South African law does not
recognise a general duty to act positively to remove from the mind
co-contractant each and every wrong impression by disclosing each
and every fact that may be material. Omissions are, in fact, prima
facie lawful. The existence of a duty to act will therefore depend
on the circumstances of each individual case.
In the past, the appeal court has often construed a duty to
disclose information with reference to the type of contract
involved, rather than in more general terms. In the case of ABSA
Bank Ltd v Fouche 2003 (1) SA 176 (SCA) on 181, the court expressed
the test involved in terms of the ordinary delictual concept of
misrepresentation by omission:
A negotiating party is expected to speak when the information he
has to impart falls within his exclusive knowledge (so that in a
practical business sense the other party has him as his only
source) and the information, moreover, is such that the right to
have it communicated to him would be mutually recognised by honest
men in the circumstances.
Opinion[footnoteRef:40]: [40: Van der Merwe et al 2007:
111-11240 Van der Merwe et al 2007: 11241 Van der Merwe et al 2007:
113-114]
A representation by means of an expressed opinion is not readily
regarded as actionable. One reason for this is that an opinion,
even if false, will often not be in conflict with the norm involved
and as such will not be wrongful. A statement which purports to
state actual facts made by one party to contractual negotiations
and which actually misleads the other party, will usually be
regarded as infringing the norm, since it would normally be
reasonable for the other party to act on such a statement. A
statement that is clearly an expression of the mere view or
conviction of the representor cannot so easily entitle the
representee to rely on it. Hence, the materiality of the facts to
which the opinion refers assumes special importance. As far as the
reasonableness of the act is concerned, there does not seem to be a
difference in principle between a representation relating to a fact
and an opinion.
Puffing[footnoteRef:41]: [41: ]
Representation made during the course of negotiations in order
to persuade another to conclude a contract, will not be actionable
if they amount to what is generally called mere puffing or puffery.
Puffing refers to persuasive talk and claims commending and
praising the properties of the representors performance. In the
case of Cockroft v Baxter 1955 (4) SA 93 (C), the court decided
that the claim that a car has an excellent engine, whereas its
condition was merely normal considering its year and mileage, was
not actionable, because it was not a wrongful representation. Such
a statement amounts to a simple commendation (simplex commendatio)
as long as it does not go beyond mere praise and commendation.
Study the case of Phame v Paizes 1973 (3) SA 397 (A) in detail.
2.3.3. Fault[footnoteRef:42]: [42: 42 Van der Merwe et al 2007:
113-114]
Fault refers to the legal blameworthiness which accompanies the
wrongful conduct of the misrepresentor. Fault takes two forms,
intent (dolus) and negligence (culpa in the narrow sense).
Intent is defined as a legally reprehensible state of mind which
consists in directing the will to attaining a particular result
while conscious of the wrongful conduct in question.
Negligence is the lack of the necessary degree of care in
circumstances under which the reasonable person in the position of
the actor would have foreseen the possibility of harm to the other
and would have taken reasonable steps to guard against the
harm[footnoteRef:43]. [43: 43 Van der Merwe et al 2007:
114-116]
Not every representation which is false is accompanied by fault
on the part of the representor. We shall deal with the aspect of
innocent misrepresentation later on.
2.3.4. Causation[footnoteRef:44] [44: 44 Van der Merwe et al
2007: 115]
A misrepresentation will be actionable only if it has induced
the misrepresentee to enter into the contract as it is. This means
that the misrepresentation must have caused the misrepresentee to
contract where he would not have contracted at all, or at least to
conclude a contract on terms which otherwise not have consented.
The test for determining a causal link or nexus is the one which is
applied elsewhere in the law. In practice, it has developed into a
two-tier test. In comprises, in the first place, an inquiry whether
the misrepresentation in fact caused the contract. In the second
instance, this inquiry entails determining an existing fact, yet it
is commonly conducted by the application of the conditio sine qua
non test.
The conditio sine qua non-test asks the question whether the
contract or its specific terms would have resulted but for the
misrepresentation.
A misrepresentee will therefore prove factual causation even if
he can prove no more than that the misrepresentation was only one
of the operative facts which induced him to contract as he
did[footnoteRef:45]. [45: ]
2.3.5. Undesirable result: Contract or Damage[footnoteRef:46]
[46: Van der Merwe et al 2007: 116-117]
When a claim for damages based on misrepresentation is brought,
proof is required that damage in the form of patrimonial loss has
actually been suffered as a result of the misrepresentation. This
is in keeping with the general rule applicable to the law of delict
in South Africa.
2.4. The two different forms of misrepresentation.
2.4.1. Fraudulent misrepresentation:
A delict is committed in the case of fraudulent
misrepresentation, and so a delictual remedy is used: the Actio
Legis Aquiliae. It has nothing to do with breach of contract: the
delict is already committed before the creation of the contract.
Intentional misrepresentation: The misprepresentor knows that the
fact/statement/promise is false and that it will move the other
party to contract. The motive is gained fraudulently and is
intended towards moving the victim to enter into the contract.
Negligent misrepresentation: The misrepresentor ought to have been
aware of the falsity of his statement as a reasonable person would
have done to make sure of the correctness of the statement. See the
case of FF Holzhausen v ABSA Bank Ltd (280/2003) on the Supreme
Court of Appeals website (need not be studied in detail, though).
If misrepresentation is proven, the contract is voidable. The
contract remains intact, however, until a court decides that
misrepresentation lead to the conclusion thereof. If the victim
cancels the contract, he/she would commit breach. Damages at
misrepresentation are calculated according to the negative
interest: Only damages actually suffered may be claimed for, not
consequential damages.
2.4.2. Innocent misrepresentation:
Both contracting parties act in a bona fide, innocent and
reasonable manner during negotiations, but one suffers damages
because certain facts are unknown to them.
Study the following two cases regarding innocent
misrepresentation:
Phame v Paizes 1973 3 SA 297 ALabuschagne Broers v Spring Farms
1976 (2) SA 828 (T)
Unit 3 (Continued)Consensus obtained by improper means (II)
Learning outcomes:After completion of this unit, the student
should be able to:
1. Explain what is meant by the term duress.2. List the elements
of duress as established in the case of Broodryk v Smuts.3. Name
and discuss the elements of duress.4. Explain what is meant by the
term :undue influence.5. Discuss the case of Preller v Jordaan with
specific reference to how the elements of undue influence were
derived from the case.6. Name and discuss the elements of undue
influence.7. Name and discuss the remedies available to a claimant
in terms of duress and undue influence.
Study:
1. Van der Merwe et al. Contract. General Principles. Third
Edition. Chapter 4.
2. From List of cases:
Broodryk v Smuts 1942 TPD 47.
Malilang v MV Houda Pearl 1986 (2) SA 714 (A)
Medscheme Holdings (Pty) Ltd v Bhamjee 2005 (5) SA 339 (SCA)
Consol Limited t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd
& Another2005 (1) SA 1 (SCA).
Alternative study:
3. Christie. The Law of Contract in South Africa. Fifth Edition.
Chapter 7.
4. Bhana et al. Students guide to the Law of Contract. Second
Edition. Chapter 10.
5. Kerr. The Principles of the Law of Contract. Fourth Edition.
Chapter 11
1. Duress
1.1. Introduction[footnoteRef:47] [47: Van der Merwe et al 2007:
117-118]
It sometimes happens that a contractants decision to enter into
a contract is influenced because of the fact that he was forced or
compelled to agree to the contract.[footnoteRef:48] In the case of
Ilanga Wholesalers v Ebrahim 1974 (2) SA 292 (D) for instance,
someone who had stolen postage stamps from his employer was
compelled by threat of prosecution to agree to an acknowledgment of
debt. In the case of Salter v Haskins 1914 TPD 264, a person who
had committed adultery with his partners wife was persuaded to
transfer his share of the partnerships property to the aggrieved
partner for fear of an action for damages. In the Savvides-case,
already mentioned in the previous lecture, the husband threatened
to leave the matrimonial home if his wife didnt sign a power of
attorney, and in the case of Malilang v MV Houda Pearl 1986 (2) SA
714 (A) a shipowner threatened not to off-load his cargo if he
didnt receive increased wages. [48: Van der Merwe et al 2007:
117]
It is important to keep in mind at this stage that there is no
watertight distinction between duress and undue influence (which is
for all practical purposes an English law concept). See the
introduction of Lecture 3.
Van der Merwe et al state that compulsion may be exercised by a
direct application of physical force or indirectly by way of a
threat of harm.[footnoteRef:49] The direct [49: Van der Merwe et al
2007: 118]
application of physical force is calles vis absoluta when
someone is physically overpowered in such a manner that he cannot
be said to act at all, for instancewhen a persons signature to a
document is obtained by physically forcing hishand to write. A
threat of harm, on the other hand, which is used to evoke a
consenting expression of will, is called vis compulsiva or duress.
The will of thecontractant who is subjected to the threat is
nevertheless a valid expression of intent: A forced will is
nevertheless a will. The one who consents therefore acts,albeit in
fear. A prospective contractant may be in such fear of a threat
that he becomes incapable of forming a legally relevant will, in
which case he cannot besaid to have acted at all.[footnoteRef:50]
[50: Van der Merwe et al 2007: 118]
1.2. Elements of duress
The act of duress is a delict. A contractant who wishes to avail
himself of the remedies for duress must accordingly prove the
existence of the elements of the delict. The important classic case
to be studies in detail here is that of Broodryk v Smuts 1942 TPD
47.
In the abovementioned case, Broodryk, an employee of the state,
was persuaded to enlist in the armed forces by government officials
who threatened otherwise to have him imprisoned or interned. In
considering an exception to Broodryks claim for rescission of the
enlistment contract, the court expressed the elements necessary to
set aside a contract on the grounds of duress as follows:
(1) Actual violence or reasonable fear.(2) The fear must be
caused by the threat of some considerable evil to the party or his
family.(3) It must be the threat of an imminent or inevitable
evil.(4) The threat or intimidation must be contra bonos mores.(5)
The moral pressures used must have caused damage. [footnoteRef:51]
[51: Van der Merwe et al 2007: 119]
1.2.1. Act (conduct)[footnoteRef:52] [52: Van der Merwe et al
2007: 119-120]
The act consists in compelling the other party to agree to the
contract by the direct application of physical force or by a threat
of harm. There must be actual compulsion in the eyes of the law.
However, the immediacy of the undesirable consequences which the
act of compulsion may bring about does not form part of the content
of the act/conduct, although in given circumstances it may
contribute to a conclusion about the presence or absence of an act
of compulsion. The fact that the physical violence or impending
harm is not imminent, but is experienced by the other contractant
as a more remote possibility in the future, would not necessarily
exclude the conclusion that compulsion has occurred.
The requirement of a threat of an imminent or inevitable evil as
set in Broodryk v Smuts can be interpreted in this light.
The reference in the abovementioned case to the existence of
reasonable fear does not refer to the act itself, in the sense that
the act as such must consist in the actual excitement of fear. Fear
may be the result of the act of duress. As such, the existence of
reasonable fear may be indicative of the wrongfulness of the act,
or of the existence of a causal link between the act and the
alleged harm. It is doubtful, however, whether the presence or
absence of reasonable fear should carry much weight in this
regard.
Van der Merwe et al mention that according to De Groot De jure
belli ac pacis 2.11.7 the question whether the fear was reasonable
should not be considered at all, and a contractant in whom fear was
actually instilled should not be open to the reproach that he
should not have been so easily scared.[footnoteRef:53] [53: Van der
Merwe et al 2007: 119 fn 121]
Several additional factors are often mentioned in relation to
the act. So, for example, in the Broodryk-case, the court required
a threat of some considerable evil against the party or his family.
The threat must also be directed against at their lives or physical
integrity, whereas it is doubtful whether duress directed at the
property or goods of a contractant should be actionable (notably in
the case of Van den Berg & Kie Rekenkundige Beamptes v
Boomprops 1028 BK 1999 (1) SA 780 (T) on 784-785). These factors,
together with others such as gender, status and age of the other
contractant, are considerations in the process of evaluating the
reasonable reasonable quality of the conduct. This applies
particularly to the requirement that there must be reasonable
fear.
1.2.2. Wrongfulness[footnoteRef:54] [54: Van der Merwe et al
2007: 120-122]
The wrongfulness of an act of duress is determined by the same
general test which applies to misrepresentation (see lecture 3).
According to Broodryk v Smuts the act must be contra bonos mores.
This implies in fact that the act must be wrongful, or that there
must be a threat of unlawful action. The question which must be
posed is whether the act of compulsion itself is wrongful. This may
be the case even where a contractant is threatened with lawful
action, but to obtain a result to which the contractant who exerts
the duress is not reasonably entitled in the circumstances. The
latter situation has occurred particularly in the context of
agreements concluded under threat of criminal prosecution. Although
the courts have not given a uniform expression of their approach to
the matter, on a close reading (according to Van der Merwe et al)
of the decisions it becomes clear that they (the decisions) are
based on the same principle: A threat of prosecution is wrongful if
it is employed by a contractant to exact a performance which is
more advantageous than that to which he is reasonably entitled.
Obtaining consensus by a threat of civil proceedings (such as
instituting action for payment of a cheque) will not be readily be
regarded as contrabonos mores. It is however, according to Van der
Merwe et al, unthinkable that the boni mores may frown on some
threats of instituting civil proceedings.
Occasionally, a contractant concludes a contract due to duress
by a third party for whose acts the co-contractant cannot be held
legally liable. Anagolous to the position pertaining to
misrepresentation by a third party, such duress should not be
imputed to the co-contractant, although there is some support in
our law for the opposite view.
1.2.3. Fault[footnoteRef:55] [55: Van der Merwe et al 2007:
122]
Generally, the circumstances surrounding an act of compulsion
will allow an inference of fault. There will normally be a
deliberate act which in law will constitute an intentional act if
the perpetrator realises that his conduct is wrongful. In less
obvious cases of duress, particularly threats of criminal
prosecution, the present of intent (dolus) may not be so apparent,
since knowledge of wrongfulness will often be absent. Although the
facts of a particular case may warrant the inference of negligence,
the question arises whether proof of fault is at all necessary
where the contract is rescinded without a claim for damages. Since
the basis of duress as a ground of rescission lies in the inability
to express an intention in a free and unfettered manner due to the
improper conduct of a co-contractant, one may well ask whether the
unlawful expression of a threat should not suffice for rescission
of the contract.
In the case of Arend v Astra Furnishers (Pty) Ltd 1974 (1) SA
298 (C), the court stated the following:
it is clear that a contract may be vitiated by duress (metus),
the raison detre of the rule apparently being that intimidation or
improper pressure renders the consent of the party subjected to
duress no true consent
The courts reference to true consent should be taken to mean
that there was no free expression of will and not that there was no
legally relevant consensus.[footnoteRef:56] [56: Van der Merwe et
al 2007: 122 fn 146]
1.2.4. Causation
The remedies for duress will be available only to a contractant
who proves that the contractant who can prove that the contract was
caused by the duress. The considerations applying to causation in
the context of misrepresentation (see lecture 3) apply to duress as
well.
1.2.5. Undesirable result: Contract or damage[footnoteRef:57]
[57: Van der Merwe et al 2007: 123]
Actual damage as a result of the conclusion of the contract is a
prerequisite for a successful claim for damages. The courts have
actually expressed the elements of duress so as to include damage
also where the contract was being rescinded without a claim for
damages. (See particularly Broodryk v Smuts and Arend v Astra
Furnishers (Pty) Ltd In so far as duress as a ground for rescission
is based on the consideration that the expression of intent is not
completely free, it seems logical that actual damage need not be
proved to justify rescission alone.
1.3. Duress of goods and economic duress[footnoteRef:58] [58:
Van der Merwe et al 2007: 123]
These matters have already been touched on above. Keep in mind
that duress of goods does not constitute a spate principle in South
African law. In so far as it refers to a threat directed at the
property of a contractant, it must be treated like a threat
directed at any other protected interest. In so far as it relates
to a claim for the repayment of money paid to avoid harm to
property, the term duress of goods relates to a claim for
enrichment. The requirement that repayment will only be granted if
performance was agreed to under protest, is then part of the
requirements for the condictio indebiti, more particularly that
performance must have been made sine causa.
Where a person concludes a contract under so-called economic
duress, like in the case of Malilang (see above), has been
discussed often. In the case of Medscheme Holdings (Pty) Ltd v
Bhamjee 2005 (5) SA 339 (SCA) it was decided that the principle
that economic pressure may, in appropriate cases, constitute
duress, does not form part of South African law.
2. Undue influence[footnoteRef:59] [59: Van der Merwe et al
2007: 124-129]
2.1. Introduction
According to Van der Merwe et al, a third specific ground for
rescission of a contract came to be raised before the courts as a
basis for relief distinct from the traditionally accepted grounds
of misrepresentation and duress.[footnoteRef:60] The contention was
that, under certain circumstances, a contractant who had been
persuaded to conclude a contract with someone, who had previously
acquired some influence over him and who had exerted that influence
to obtain his consent, should be entitled to rescind the contract.
As mentioned before, this new ground for rescission was not
accepted easily, notably by Van den Heever JA in Preller v Jordaan.
The main objections to undue influence as a ground for rescission
of a contract were that it was historically not part of our law and
that it was incapable of exact definition and limitation and would
therefore lead to uncertainty in the enforcement of contracts.
Historically, the criticism was not without substance, for undue
influence did not form a part of our common law of contract. It is
derived from English law, where it had originally been developed as
a concept of equity, justifying rescission of a contract under
circumstances where it could not have been impugned under the
strict principles of the common law. It was effectively
incorporated into South African law by the majority decision in
Preller v Jordaan. [60: Van der Merwe et al 2007: 124]
2.2. Elements of undue influence read with the case of Preller v
Jordaan[footnoteRef:61]: [61: 1956 (1) SA 483 (A)]
In the abovementioned case (which has been included in your case
list and must be studied in detail), the appellant was a doctor who
had been treating the respondent for some years. The respondent was
critically ill, of an advanced age, and mentally and physically
exhausted. He had great concern over the continuance of his farming
operations in the interest of his dependants if he should die.
Against the respondents initial doubt, the appellant persistently
advised and eventually persuaded the former to transfer four farms
into his (the appellants) name, which was subsequently done. The
respondent recovered and wished to rescind the contract on the
ground that the appellant had exerted his influence over the
respondent improperly. The majority decision by the appeal court
regarded this as undue influence.
According to the court[footnoteRef:62] a contractant who wishes
to rescind a contract on the ground of undue influence must prove
the following: [62: See 492G-H]
(i) That the other contractant obtained an influence over
him;(ii) That this influence weakened his powers of resistance and
made his will pliable;(iii) That the other contractant used this
influence in an unconscionable manner to persuade him to agree to a
transaction which was (a) to his detriment and (b) he would not
have concluded if he had enjoyed normal freedom of
will.[footnoteRef:63] [63: Van der Merwe et al 2007: 126]
Once again, as with the other two grounds for rescission, the
question arises whether the requirements expressed by the courts
characterise undue influence as a delict. The courts have not
expressly called it such, but according to Van der Merwe et al it
will be appropriate to deal with the rather wide concept of undue
influence outside the strictures of the law of
delict.[footnoteRef:64] [64: Van der Merwe et al 2007: 127]
2.3. Elements of Undue influence[footnoteRef:65] [65: Van der
Merwe et al 2007: 127-129]
2.3.1. Act
The act consists in exercising influence over a
co-contractant.
2.3.2. Wrongfulness
According to the courts, the influence must have been such as to
weaken the other partys resistance and to make his will pliable,
and must have been exercised in an inconscionable manner. This
would mean that the act must have been wrongful.
2.3.3. Fault
There is no clear indication that fault is required for a
successful rescission of a contract because of undue influence. In
the context of the conclusion of contracts, it does not seem
necessary to prove fault as an element of undue influence. (In case
one considers undue influence as a delict, fault will have to be
proved, though.)
2.3.4. Causation
Rescission for undue influence requires proof that the contract
would not have been concluded if the contractant who rescinds had
not been unduly influenced. The considerations applying to
causation in the context of misrepresentation apply here.
2.3.5. Undesirable result: Contract or damage
According to the courts, rescission for undue influence requires
proof that the contract was to the detriment of the contractant who
wants to rescind. Detriment does not necessarily mean damage in
this regard, though.
2.4. Remedies for the three forms of consensus obtained by
improper means
2.4.1. Upholding of the contract:
The victim realises that consensus wasnt only achieved because
of the misrepresentation.
The victim would still have contracted, but:
-Would have paid less if he were aware of the true facts;- He
claims for the difference in price on a delictual basis.- He is
dissatisfied because the other party doesnt perform in terms of the
contract (positive malperformance).- He claims contractually.- He
claims i.t.o. estoppel or breach of contractual-principles.
2.4.2. Rescission
The victim claims that no contract ever came into existence,
because of the fact that his will was influenced by
misrepresentation, and no consensus exists.
He wouldnt have contracted if he had been aware of the true
facts.
Pages 130-135 of Van der Merwe et al need not be studied for
test and/or exam purposes.
Unit 4Offer and Acceptance
Learning outcomes:After completion of this unit, the student
should be able to:
1. Explain where the terms offer and acceptance are derived
from.2. Discuss the term offer with specific reference to the
following:2.1. Elements of a valid offer.2.2. Legal consequences of
an offer.2.3. Lapse of an offer.3. Discuss the term acceptance with
specific reference to the case of Steyn v LSA Motors.
Study:
1. Van der Merwe et al. Contract. General Principles. Third
Edition. Chapter 3.
2. From List of cases:
Crawley v Rex 1909 TS 1105
Bloom v American Swiss Watch Co. 1915 AD 100
Steyn v LSA Motors 1994 (1) SA 49 (A)
Alternative study:
3. Christie. The Law of Contract in South Africa. Fifth Edition.
Chapter 2
4. Bhana et al. Students guide to the Law of Contract. Second
Edition. Chapter 3.
1. Introduction[footnoteRef:66] [66: Van der Merwe et al 2007:
54]
In its simplest form, a contract consists of an invitation to
consent to the creation of obligations between two or more parties
(called an offer), and an affirmative response (called an
acceptance).[footnoteRef:67] The rules regarding offer and
acceptance must accordingly be understood in the light of their
underlying premise, namely that a contract entails the formation of
a common intention by the contractants through an exchange of
declarations which express their respective
intentions.[footnoteRef:68] [67: Van der Merwe et al 2007: 54] [68:
Van der Merwe et al 2007: 5468 Van der Merwe et al 2007: 5569 Van
der Merwe et al 2007: 5670 Van der Merwe et al 2007: 56]
A clearly discernible offer and distinct acceptance are not by
themselves requirements for the creation of a contract. Since a
contract is a juridical act, the agreement of the parties must of
course be declared outwardly in order to be legally relevant.
Whether particular declarations constitute a contract must however
be answered with reference to the general requirements for the
creation of a contract. One of these requirements is the presence
of consensus, and offer and acceptance are facts from which
consensus may be inferred.
Offer and acceptance may also be relevant in other respects,
though. It may, for instance, serve to indicate exactly where a
contract was concluded, or exactly when it generated legal
consequences. In the absence of special provisions in the contract
itself, the place and time of conclusion of the contract are
determined by the rules governing offer and acceptance. These rules
also provide a basis for explaining problematic aspects of the
relations between contracting parties in the preliminary phase of
their negotiations before the conclusion of the
contract.[footnoteRef:69] [69: ]
2. The Offer2.1. Elements of a valid offer[footnoteRef:70] [70:
]
An offer is an expression of will, made with the intention of
creating an obligationary relationship on certain or ascertainable
terms with another, and brought to the attention of the addressee,
so as to enable him to establish a contract by accepting the offer
as it was made.[footnoteRef:71] Although ordinarily addresses to a
specific person, an offer does not require an addressee to be
valid. An offer of reward, for instance, is made to the public at
large, while some kinds of auction involve an offer to a particular
class of persons. An offer may be made in any particular form, and
may be made in any way that the offeror thinks fit, whether
expressly or tacitly. The offeror may, in the offer itself,
prescribe certain formalities with which the proposed should
comply. An offer made by way of a tender has been held to be
ineffective where made in a way adjudged to be contrary to public
policy, most notably in Warrenton Munisipaliteit v Coetzee 1998 (3)
SA 1103 (NC). [71: ]
To constitute an offer, a declaration of intention must set out
the essential and material terms of the envisaged contract too such
an extent that mere acceptance will render the legal consequences
of the contract certain or objectively ascertainable. In practice,
declarations contained in advertisements for the sale of goods or
invitations calling for tenders for the completion of specified
work or for the purchase of land will often fail to meet this
requirement, and will for that reason not qualify as offers.
See in this instance the well-known case of Crawley v Rex 1909
TS 1105, where an advertisement for the sale of tobacco, although
specifying a price, failed to specify the quantity involved in each
sale.
Even of a declaration sets out the detail of a proposed
relationship with sufficient certainty, it will only constitute a
valid offer if it was made with the intention that the offeree
should have the power to create a contract by accepting it. The
intention with which an offer is made, if not expressly
articulated, is established by inference from the declaration and
the surrounding circumstances. Whether a declaration amounts to an
offer or is nothing more than an invitation to negotiate depends
finally on whether the elements of an offer are present, and not on
the classification of the particular declaration. There can,
accordingly, be no inflexible rule that declarations contained in
advertisements and similar expressions of intentions can never
amount to offers. The legal effect of declarations by way of
advertisements, catalogues and circulars, and the display of goods,
with or without price tags, in a self-service setting or otherwise,
depends on the intention with which a particular declaration is
made, its content and, in exceptional cases, its form.
According to Christie, what distinguishes a true offer from any
other proposal or statement is the express or implied intention to
be bound by the offerees acceptance.[footnoteRef:72] If the
intention to be bound by mere acceptance is lacking, the offeror
lacks the necessary animus contrahendi.[footnoteRef:73] The term
lack of animus contrahendi is descriptive of the instances where it
is clear from the surrounding circumstances or the manner in which
the offer was made that the offer was not intended to be taken
seriously.[footnoteRef:74] [72: Christie 2006: 29] [73: Christie
2006: 30] [74: Christie 2006: 30]
An offer made in jest, for instance, cannot lead to the creation
of a contract. Neither can an offer made in a moment of anger,
unless the offeror afterwards persists in his offer. Likewise, an
offer made as an illustration of how an offer is made, or made
unintentionally while telling a story, or an offer made in a vague,
impersonal way, or finally an offer made as a compliment, can never
constitute a valid offer fr the creation of a contract.
2.2. Legal consequences of an offer[footnoteRef:75] [75: Van der
Merwe et al 2007: 58-59]
A contract is a bilateral juristic act and in the main,
liability ex contractu is based on the agreement of the parties. It
is not accepted in our law that an obligation may be created
voluntarily by a unilateral act, as was possible by the
pollicitatio of Roman law. An ordinary contractual offer,
therefore, does not in itself create rights and duties between
offeror and offeree. It does, however, give rise to the expectation
of a future right, because the offeree has the capacity to create
by acceptance the obligations envisaged by the offer. No matter
what value an offer in itself may have to the parties involved, its
legal consequences are of limited commercial importance. In so far
as it does not create obligations, an offer may be revoked and
because it does not form part of the estate of either the offeror
or the offeree, an offer lapses on the death of the either party
and cannot be ceded.
2.3. Lapse of an offer[footnoteRef:76] [76: Van der Merwe et al
2007: 59]
Because of the fact that an offer has no obligationary effect,
it may be revoked by the offeror (according to the case of
Oos-Vrystaat Kaap Bedryf Bpk v Van Aswegen 2005 (4) SA 417 (O)).
Revocation is possible until the moment upon which the contract is
concluded and is not precluded by a time limit set for acceptance.
Because an offer is made with the purpose of eliciting a response
from the offeree, the contention has been made that the capacity to
withdraw lapses as soon as the offeree begins to articulate a
response. Revocation of an offer is effective only if the offeree
is notified of the decision to revoke. An offeror who has not
communicated to the offeree his decision to revoke may -upon
acceptance- be held liable on subjective grounds, regardless of the
fact that that he no longer intended to incur liability. Because an
offer does not create assets or liabilities in the estate of either
the offeree or the offeror, it lapses on the death of either these
parties.
An offer will lapse if it is rejected by the offeree, and a
counter-offer by the latter is regarded as tantamount to a
rejection. An inquiry by the offeree merely to clarify aspects of
the offer or a request to modify its terms does not necessarily
amount to a counter-offer, and the same is true of an acceptance
which departs from the offer in immaterial respects only. An offer
has a limited duration. Where the offer stipulates a period for
acceptance, it lapses if acceptance does not take place within that
period. Otherwise an offer lapses if not accepted within a
reasonable period.
3. Acceptance[footnoteRef:77] [77: Van der Merwe et al 2007:
61-68]
In the case of Lowe v Commission for Gender Equality 2002 (1) SA
750 (W), it was decided that acceptance is a declaration of will,
which indicates assent to the proposal contained in the offer and
which is communicated to the offeror. Where an offer envisages a
unilateral contract involving duties for the offeror only, an
unexpressed decision to accept would suffice as a valid
acceptance.[footnoteRef:78] An intention to enter into obligations
with the offeror is an essential element of acceptance. The
consensual basis of contract implies that acceptance should be by
way of conscious reaction to the offer, and that for consensus to
be effective it should correspond with the terms set out in the
offer. The acceptance must be unambiguous, so that it is clear to
the recipient, using ordinary reason and knowledge, that the
agreement is complete. It should be kept in mind that anything more
or less than an unqualified offer constitutes a counter-offer, and
is for all practical purposes a rejection of the original offer.
Where an addressee in declaring his acceptance refers to certain
terms, which are not mentioned in the offer but will be included in
the eventual contract by operation of law, his declaration should
be a valid acceptance. An enquiry in an acceptance whether the
offeror is willing to modify the offer will not affect the validity
of the acceptance, as long as modification is not a condition for
acceptance. [78: Note that Van der Merwe et al are not entirely
convinced by this argument. ]
According to the prescribed textbook, an incomplete acceptance
may sometimes reflect an intention to create obligations with a
certain or ascertainable content, while negotiations on outstanding
issues continue.
According to Christie, an unaccepted offer cannot create a
contract, since it emanates from the offeror alone, and the
necessary agreement cannot be held to exist without some evidence
of the state of mind of the offeree.[footnoteRef:79] The general
rule is thus that no contract can come into existence unless the
offer is accepted.[footnoteRef:80] A logical but important question
that arises is of course who, in fact, has the power to accept.
Christie states that a simple contractual offer made to a specific
person can be accepted only by that person.[footnoteRef:81] A
purported acceptance by some other person is ineffective and does
not bring about the conclusion of a contract. [79: Christie 2006:
57] [80: Christie 2006: 57] [81: Christie 2006: 58]
In the interesting case of Steyn v LSA Motors 1994 (1) SA 49
(A), which must be studied in detail, a valid offer was accepted by
someone who did not have the power to accept the specific offer.
Consequently, no contract was concluded.
Because the object of analyzing a transaction into offer and
acceptance is to ascertain whether the parties have reached
agreement, a party who claims to have accepted an offer, the
existence of which such a party was oblivious at the time of his
alleged acceptance, is trying to place form before
substance.[footnoteRef:82] [82: Christie 2007: 60]
In the case of Bloom v The American Swiss Watch Co 1915 AD 100,
Bloom failed to recover the advertised reward because he was
ignorant of the advertised offer of reward at the time he performed
the act of giving information to the CID which, had he known of the
offer, would have amounted to the necessary acceptance of that
offer. He thus acted without animus contrahendi.
Christie states, very importantly, that acceptance must be
unequivocal or unambiguous[footnoteRef:83], as well as
corresponsive to the offer.[footnoteRef:84] [83: Christie 2007: 60]
[84: Christie 2007: 62]
Methods of acceptance[footnoteRef:85] [85: Christie 2007:
64-65]
English writers such as Chitty take the view that a method that
is as advantageous to the offeror as the method he has prescribed
will suffice unless he has made it clear that his prescribed method
and no other is to be employed.[footnoteRef:86] In such a case the
offerors wishes must be respected, no matter how capricious they
may be, because it is not for the court to make a contract for the
parties. [86: Christie 2007: 65]
An offer which does not make it unequivocally clear that the
prescribed method and no other is to be employed should be given an
equitable interpretation to permit acceptance by a method equally
advantageous to the offeror.[footnoteRef:87] [87: Christie 2007:
65]
Silence as acceptance[footnoteRef:88] [88: Christie 2007:
65-66]
A necessary limitation on the offerors liberty to indicate the
mode of acceptance is that he cannot force a contract on the
offeree by saying that he will take the offerees silence as
acceptance.[footnoteRef:89] Silence may, however, amount to
acceptance of an offer in circumstances which give rise to a duty
to speak, if the offeree is not prepared to accept the offer. [89:
Christie 2007: 65]
Unit 5Contracts Inter Absentes
Learning outcomes:After completion of this unit, the student
should be able to:
1. Explain in detail, with the aid of relevant case law, what
the so-called information theory with regard to det