1.

The notion of a contract

1.1 Definition of a contract

Dale Hutchinson et al The Law of Contract in South Africa at p 6 defines a contract as

an agreement entered into by two or more persons with the intention of creating a

legal obligation or obligations. This means that not all agreements between parties

constitute a contract. A contract requires a serious intention on the part of the

contractants to create a legally enforceable obligation called animus contrahendi. See

the categories of agreements noted by Dale Hutchinson at p 4.

 Obligatory agreements

 Absolving agreements

 Real agreements. When does an agreement constitute a contract?

1.1.1 The nature of a contract

 Juristic and bilateral act

 Entails promises or undertakings

 Reciprocal nature of a contract

1.2 The concept of an obligation

Van der Merwe et al Contract General Principles describes the law of contract as the

collection of legal rules which govern contracts. These rules are, in turn, part of the

claw of obligations. Farlam and Hathaway Contract, Cases, Materials and

Commentary Third edition by G J Lubbe and C M Murray p 1 describe a contract as a

source of an obligation. The latter is defined as legal relationship comprising rights

and duties between legal subjects. Contractual obligations are created by agreement

(actual or apparent) of the parties. See further Dale Hutchinson (ed) the Law of

Contract in South Africa pp 7- 8. This is in sharp contrast to a delictual obligation

which arises ex lege (by operation of law) when a legal subject has wrongfully and
without justification intentionally or negligently infringed a recognized interest of

another to the detriment of that person.

We also distinguished between civil and natural obligation. The former refers to an

obligation which is enforceable in law either by means of a court order for specific

performance or an award of damages. A natural obligation, though legal is not legally

enforceable. It is, however, capable of indirect enforcement by means of set off and

can even serve as basis of pledge of suretyship.

1.3 Primary sources of obligations

They are contract and delict, unjustified enrichment, negotiorum gestion, family

relationship, wills and statutes. The emphasis in this course will be on contract and

delict.

1.4 Contract and delict and problem of concurrent liability

Students should read pages 8 and 9 of the Law of Contract in South Africa. This

problem is clearly illustrated by the following cases:

Lillicrap, Wassenar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA

475 (A); and

Trustees Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd 2006 (3) SA

136 (SCA).

1.5 Contract and enrichment

Just read through p 9

Our law of contract is a modernized version of the Roman Dutch Law of Contract.

Roman – Law had no general law of contract, but law of contracts. This means that

there were several contracts each governed by certain general principles and its own

peculiar rules.

Roman Dutch Law. The institutional writers completed the process of generalization

and discarded the subtle distinction of the Roman Law of contract the fundamental

principle that as a matter of good faith, all serious agreements ought to be enforced

(pacta sunt servanda). All contracts were consensual and bona fide.

1.7 The basis of contract

The following theories of contract deserve attention: will theory, declaration theory

and reliance theory.

1.7.1 The Will theory

- The basis of contract is the will of the parties (meeting of the minds of

the parties). If one party is in error as regards one of the vital elements

of the agreement there is no real agreement. The result is that neither

party is bound and each party may reclaim whatever it has performed.

In the light of the unsatisfactory outcome of this approach there were

suggestions that this theory be supplemented. As will be shown later

the shortcomings of the will theory in the event of dissensus, are

corrected by the reliance theory. Please read Dale Hutchinson’s

comments at pp 15 – 16.

1.7.2 Declaration theory

According to this theory the basis of an agreement is not the underlying will of the

parties but the will of the parties as manifested in their actions. This formulation was
made by Wessels J A in South African Railways & Harbours v National Bank of

South Africa Ltd 1924 AD 704 at 715 where the learned judge of appeal stated:

“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 it 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 at their acts and

assume that their minds did meet and that they contracted in accordance with 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.”

This statement of the law has been criticized by various academic writers. Kerr points

out that Wessels JA did not apply this theory to the facts of the case before him. He

suggests that it should not be followed in the future [Kerr The Principles of the law of

Contract 6th ed p 20 – 25]

1.7.3 Reliance theory

According to this theory as it is applied in the context of dissensus, a contract is based

on the intention of one party to an agreement and the reasonable impression or

reliance on his part that the other party had the same intention.

It is regarded as only supplementary to the will theory: if the two parties do have

coinciding intentions there is consensus and no need to enquire whether one of the

parties had any particular impression of the other’s intention.

If there is a material mistake by one party or both and therefore no actual consensus,

the reliance theory acknowledges that there is a contract if one of the parties, in a

reasonable manner, relied on the impression that there was consensus.

The reliance theory has been applied in a number of decisions (see footnote 99 p 35

Van der Merwe et al.

Requirements for proving a contract on the reliance theory

One of the parties to the agreement must have created in the mind of the other party

the belief or reliance that they had reached a consensus – see the Hodgson Bros v
South African Railways 1928 CPD 257 noted at page 36 of Van der Merwe et al

The party who wants his reliance upheld must show that the reliance was reasonable

in the circumstances

Is it not clear whether fault is a requirement for the operation of the reliance theory

1.7.4 Justus error approach: This approach is fully discussed in Van der

Merwe et al pp 38-47

According to the Justus error approach a party to an agreement who raises mistake

and wishes to escape contractual liability must prove not only that the mistake is

material but also that it is reasonable (iustus hence iustus error). The case of Justus

error is that of George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A).

See the example of a typical application of Justus error approach at page 40 of Van

der Merwe et al and the leading case Trollip v Jordaan 1961 (1) SA 238 (A) and Allen

v Sixteen Starting Investments (Pty) Ltd 1974 (4) SA 164 (D). These cases are noted

at pages 41-42.

1.8 Approach to contract: subjective or objective? See The law of contract

in South Africa pp 17-20

1.8.1 Cornerstones of Contract pp 22-32

 Freedom of contract (party autonomy) see also the Law of Contract p 23

 Sanctity of contract. This (finds expression in pacta sunt servanda)

principle also expresses the goals of contract, namely, that “the function

of contract law is thus not merely to ensure that people keep their

promises…rather it is to provide a legal framework within which people

can transact business and exchange resources secure in the knowledge

that…the law will uphold their agreements” Dale Hutchinson “The Law
of Contract in South Africa” p 22

 Good faith see pages 27-30

 Public policy. See how the Constitutional Court explained the concept in

Barkhuizen v Napier 2007 (5) SA (3) 23 (CC). See also a recent comment

on this case by Matthew Kruger “The role of public policy in the law of

contract, revisited” 2011 SALJ 712.

1.9 Legal requirements of a valid contract

1.10 The Consumer Protection Act 68 of 2008

See the Summary at pages 32 – 34 in the Law of Contract in South Africa.

1.11 The impact of the Constitution