TABLE OF CONTENTS

Content
/
Page
Section 1 / Overview of Contracts / 1
Overview / 3
1.1 / The nature of Contracts / 4
1.2 / The role and nature of the parties in a Contract / 12
1.3 / Capacity to perform juristic acts / 15
1.4 / Summary / 20


Overview

Learning Outcome / The following is the Learning Outcome of this Section:
1.  Have an overview of Contracts.
Learning Objectives / The Learning Objectives are as follows:
On completion of this Section, you will be able to:
1. / Have an Overview of Contracts by:
·  Comprehending the nature of Contracts
·  Recognising the role and nature of parties in a Contract
·  Realising the capacity to perform juristic acts
Assessment Criteria / To demonstrate the achievement of the Learning Objectives, you are required to meet the criteria and/or provide the following evidence:
Comprehending the nature of Contracts
·  Describe the nature of Contracts
·  List the types of Contracts
·  List the modes of contracting
·  Identify the requirements for a valid Contract
Recognising the role and nature of parties in a Contract
·  Identify the parties who may enter into a Contract
·  Describe the freedom to Contract
Realising the capacity to perform juristic acts
·  Evaluate the contractual capacity of Minors and Majors
·  Evaluate the contractual capacity of married persons
·  Evaluate the contractual capacity of Incapacitated Persons
22
Version: 03/2004 / IB CP2 LG
1. / Overview of Contracts

1.1 The nature of Contracts

Introduction
reciprocal = to give and receive mutually / During our lives, we will enter into many Contracts. Some of these might be formal and others, very informal.
For example, if you go to the shop to buy bread and milk, you enter into a “Contract”.
The shop owner will undertake to perform a particular act, namely to hand over the bread and milk. You in turn will hand over an agreed amount in cash in return for the bread and milk. This is called a reciprocal act.
Definition of a Contract / A Contract can be defined as follows:
·  A lawful agreement, which is concluded between two or more persons
·  Within the limits of their contractual capacity
·  With the serious intention of creating enforceable obligations
·  Which meets the requirements set by the law for the formation of a valid Contract
In terms of a Contract, the parties, or one of the parties, undertakes to do, give something or refrain from doing something.

An obligation

/ An obligation is the legal relationship that exists between parties to an agreement when they acquire personal rights against each other. This may entitle them to perform and/or oblige them to perform.
In other words, the conclusion of a Contract gives rise to certain obligations from each of the parties.
If two parties conclude a Contract, an obligation arises to which one party has the right to demand that the other keep his or her promise.
In “Introduction to Law an How Laws Govern Credit” we discussed that the National Law is subdivided into four categories, namely:
1.  Private International Law
2.  Public Law
3.  Private Law
4.  Formal Law
Can you recall under which one of these categories does the Law of Obligation fit in?
Complete the diagram below by completing the category referred to with its sub-categories.
An agreement / A Contract is a particular type of agreement.
Not all agreements are Contracts because not all agreements create obligations.
Some agreements do not create legally enforceable obligations. For example, an arrangement to meet somebody at a specified date and time. This agreement creates a moral duty, but is not a Contract.
If a person tries to avoid being bound by a Contract, he/she must prove that:
·  There was no proper agreement
·  What was agreed upon is illegal
·  One of the parties lacked the necessary contractual capacity
If one party wants to hold another party to a Contract, he/she must prove that:
·  There was a proper agreement
·  The subject of the agreement is legally enforceable
·  The parties possess the necessary contractual capacity
Types of Contracts
contingency = unforeseen event or emergency / There are various types of Contracts.
Some of these include:
·  The Contract of sale
The Oxford Dictionary defines “SALE” as: “the exchange of a commodity for money”.
This is probably the most common kind of Contract as it is almost impossible to live or carry on any kind of business without either purchasing or selling goods and services from time to time.
·  The Contract of lease
The Oxford Dictionary defines “LEASE” as: “an agreement by which the owner of a building or land allows another to use it for a specified time in return for payment”.
Our law recognises 3 forms of the Contract of letting and hiring. These are the letting/hiring of:
·  Movable things
·  Immovable things
·  Work to be done (e.g. a house to be built)
·  The Contract of insurance
The Oxford Dictionary defines “INSURANCE” as: “a measure taken to provide for a possible contingency”.
Apart from the Contract of sale, this is one of the most frequently concluded Contracts in the business world.
·  The Contract of employment
The Oxford Dictionary defines “EMPLOYMENT” as: “the act of employing or the state of being employed”.
As with the Contracts of sale and insurance, this is also one of the most frequently concluded Contracts, and is in essence a contract for hiring services.
Can you think of any other Contracts? Talk to a fellow Learner or your Coach and list examples in the space below.
Modes of Contracting / An agreement can be entered into in three ways, namely:
1.  Orally
2.  In writing
3.  By conduct
The above can be explained as follows:
Orally: During a discussion with Sam, Pete offers to sell his car. Sam accepts the offer by saying, “Yes, I will buy the car”. There is no documentary evidence of this agreement.
Oral Contracts are, in most cases, just as binding as other types of Contracts. The difficulty however, is to prove the terms of an oral agreement unless witnesses are available.
In writing: Sam and Pete wish to show that they have reached an agreement by having the offer to sell the car and the acceptance to buy the car recorded in writing.
The law prescribes that some contracts must be in writing, for instance the purchase and sale of land.
By conduct: In some instances the conduct of the parties may give rise to a Contract. For example, whenever you board a bus/train and pay a fare to be transported, you enter into a Contract.
/ Discuss the “Modes of Contracting” with a fellow Learner.
Have you ever entered into an oral agreement? List an example of such an agreement and describe the circumstances under which such an agreement was made.
List and describe 3 examples of written agreements from your workplace.
Requirements for a valid Contract
formalities = official procedures; rules and regulations / The following requirements must be met in order for the Contract to be valid:
1.  There must be consensus between the parties – they must agree to create an obligation, and on its particulars. This is also referred to as:
·  “Agreement by consent”
·  “True agreement”
·  “Meeting of the minds”
·  “Coincidence of the wills”
This means that:
·  Each party to the Contract must have the serious intention to create rights and duties to which each of them will be legally bound
·  The parties must have a corresponding intention
·  The parties must make their intention known to each other
2.  Each party to the Contract must have the capacity to act. This means that he/she must be legally capable of performing the particular act, which gives rise to the formation of the Contract.
3.  The rights and duties must be physically possible. It must be physically possible to perform the terms of the Contract.
4.  The agreement must be legal. In other words, the Law must neither prohibit the agreement, nor the rights and duties created.
5.  When formalities are prescribed for the formation of a specific Contract, they must be observed.

1.2 The role and nature of parties in a Contract

Introduction

/ A Contract must be made between two or more “persons”.
A person cannot Contract with himself/herself unless he/she acts in a different capacity on each side of the Contract.
/ Do you know what the above statement means? Discuss it with a fellow Learner or your Coach and note your understanding in the space below.

People who may enter into Contracts

/ The law recognises two types of “persons” who may enter into contacts namely:
·  Natural persons
·  Legal/juristic persons
/ Can you recall the descriptions of a natural and a legal/juristic person as discussed in “Introduction to Law and How Laws Govern Credit”?
Use the space below and write your own interpretation of a legal/juristic and a natural person.
A natural person is:
/ A legal/juristic person is:
Freedom of people to Contract
Equality courts = every magistrate’s court and High Court is an equality court for the area of its jurisdiction / Our law respects the right of people to agree or Contract about anything, but it will not enforce any contract which is:
·  Illegal
·  Immoral
·  Impossible
The law will enforce agreements, which are properly made. The law will force a person who has seriously undertaken an obligation to perform what he has promised.
If the person fails/refuses to perform as undertaken in the Contract, he/she is in breach of Contract and the other party will have a legal remedy against the defaulting party.
The Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000 plays an important role in the development of the freedom to Contract.
This Act prohibits unfair discrimination on grounds of race, gender, disability, hate speech, harassment and the dissemination and publication of information that unfairly discriminates.
In terms of this Act the equality courts have a variety of powers and functions and may make an order “to make specific opportunities and privileges unfairly denied available to the complainant in question”.
This means that the court may force a person to conclude a Contract with another.
For example:
·  Where a property rental agreement is refused based on the person’s race

OR

·  Where a golf club refuses an application for membership because the applicant is a female, etc

1.3 Capacity to perform juristic acts

Introduction / One of the important requirements for a Contract to be valid, is that the parties must have the capacity to perform juristic acts.
The capacity to act is different from legal capacity. According to our laws, every legal subject, irrespective of whether he/she is a natural person (a human being), or a juristic person (for example a company), has the capacity to be the bearer of rights and duties. This capacity is termed legal capacity, and the bearer of the rights and duties is referred to as a legal subject.
However, not every person who has legal capacity has capacity to act.
“Capacity to act” refers to the capacity to perform valid juristic acts, for example to conclude contracts.
Only natural persons are potentially capable of performing juristic acts. Therefore, a natural person must conclude a Contract on behalf of a juristic person.
EXAMPLE: A company, which is a legal person and can therefore be the bearer of rights and duties, cannot itself perform juristic acts because it is not capable of acting. A natural person must perform juristic acts on behalf of the company.
But, not all natural persons have the capacity to act. In some circumstances, a person can be incapable of performing juristic acts, or his capacity can be limited. This existence of, or the limitation on, a person’s capacity to Contract, is determined by the law’s refusal to attach any validity to the expression of will by a person.
Normally, an unmarried person who turns 21, will have full capacity to act, and may therefore perform all juristic acts independently. Presumably, every person within this group is capable of performing juristic acts. But, an individual may lose this capacity, or it may be limited, due to various factors.
Contractual capacity of Minors and Majors
emancipation = a Minor gaining Majority status / Every person’s ability to form and declare a will, and the ability to appreciate the consequences of a Contract, is determined by a person’s level of intellectual and emotional development. This in turn is mostly determined by his/her age.
For the purpose of the capacity to act, a difference is drawn between 3 age levels:
·  0 – 7 years
A child under the age of 7 does not have a sufficient level of development to enable him/her to form a judgement of Contractual obligations.
He/she has no capacity to act and cannot conclude any Contracts.
The law may permit a guardian, who must be a person with the capacity to act, to act on behalf of a Minor.
·  7 – 21 years
A Minor is any natural person who has not yet reached 21 or has not been declared a Major by the court. A Minor does not have the capacity to act at all or has limited capacity, depending on his/her circumstances.
In terms of the Long Term Insurance Act 52 of 1988, a Minor who has reached 18 may without the consent of a guardian, take out an insurance policy on his/her own life and pay the premiums as though he/she is a Major.
In terms of the Children’s Act 33 of 1960, a Minor may also consent to his/her own medical treatment.
In terms of the Mutual Banks Act 124 of 1993 and the Banks Act 94 of 1990, a Minor of 16 years and older may also, without assistance, make deposits and withdraw money, and cede or burden the investment.
·  Persons 21 and older
According to the Age of Majority Act 57 of 1972, a person becomes a Major when he/she reaches the age of 21.
Unless a person’s independent ability is held back by, for example a mental deficiency, a person will have full capacity to act when he/she reaches 21.
·  Emancipation of a Minor
An emancipated Minor may conclude certain Contracts without the assistance of a guardian. Tacit emancipation takes place when the guardian allows the Minor to lead an economically independent life. Tacit emancipation can only be effected by express or implied consent of the parent.
Contractual capacity of Minors and Majors, continued / A separate place to live and the carrying on of an own business may indicate emancipation, but it is suggested that the exact circumstances must be carefully considered.
Emancipation may also indicate limited capacity to act.
·  Age of Majority Act
A Minor of 18 years and older can apply to the High Court to be declared a Major in terms of the Age of Majority 57 of 1972.
·  A person is also regarded as a Major if he/she:
·  Is a Minor but is validly married (with the consent of a guardian/parents)
·  Is divorced (regardless of age)
·  Is a widower/widow (regardless of age)
·  Is emancipated (as discussed above)
·  Majors can be divided into two categories:
·  Married persons
Their capacity to act is determined by the matrimonial property system applicable, namely:
·  Marriages in or out of community of property
·  Marriages according to customary union
·  Persons married outside the country
·  Marriages according to common/civil law
·  Marriages according to religious customs
·  Unmarried persons
An unmarried Major and a divorced person have full contractual capacity and can enter into Contracts independently.
Contractual capacity of Incapacitated Persons / ·  Prodigals
This is a person who is a spendthrift – someone who wastes or squanders his/her assets.
An application must be made via the court to declare such a person a prodigal. If the application is successful, a court order will be issued and a curator appointed to manage his/her affairs.
A prodigal has limited contractual capacity.
·  Mentally ill persons
Mentally ill persons have no contractual capacity and all Contracts entered into by these persons are invalid.
·  The influence of alcohol or drugs
Do not enter into a Contract with a person if he/she appears to be under the influence of alcohol/drugs. If a Contract is concluded with such a person, while he/she is under the influence of alcohol/drugs to such an extent that he/she has no control over his/her reasoning and does not know what he/she is doing, the Contract may be declared invalid.
·  Insolvent persons
·  Unrehabilitated insolvents: They have limited contractual capacity. Must obtain written consent from their trustee to enter into Contracts
·  Rehabilitated insolvents: Have full contractual capacity. A certificate must be obtained from the Master of the Court to confirm their rehabilitation
Discuss the “Capacity to perform juristic acts with your Manager/Coach.
Ensure that you understand all the concepts and the types of persons who have the capacity to act. List examples of 4 Contracts and the contractual capacity the person must exhibit to enter into these Contracts.

1.4 Summary