law of contract summary

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


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.


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


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)


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:



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:



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)


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:



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:



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


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:



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


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


1. Explain in detail, with the aid of relevant case law, what the so-called information theory with regard to det

law of contract summary

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