REQUIREMENTS OF A VALID CONTRACT:

1. REQUIREMENTS OF A VALID CONTRACT: • 1. CONSENSUS • 2. FORMALITIES • POSSIBILITY OF PERFORMANCE • LEGALITY • CERTAINTY • CAPACITATED PARTIES.

2. LAW OF CONTRACT UNIT 2 THE REQUIREMENT OF “CONSENSUS”

3. LEARNING OUTCOMES: • Explain what is meant by the “basis of a contract” and how it is formed. • Explain what is meant by the term “consensus”. • List and discuss the three theories for determining the presence of consensus. • Explain what is meant by the “objective approach” for determining consensus. • Explain what is meant by the term “mistake” and identify the solutions thereof.

4. What do I have to study? • Hutchison et al pp. 14-21; 41-43.. • From List of cases: • Trollip v Jordaan • Spindrifter v Lester Donovan • Du Toit v Atkinson Motors. • Allen v Sixteen Sterling Investments. • De Jager v Grunder.

5. 1. The basis of a contract. • Consensus: Actual meeting of the minds, or reasonable belief that there is consensus. • Roman jurists: not each and every simple agreement was a legally binding one. • They required specific reason for the creation of an obligation. • Roman times: verbal contracts were only binding if expressed in very specific words. • Consensual contracts: legally binding because the parties to an agreement concurred on essential parts of their pact.

6. ROMAN JURISTS:

7. Accepted the fact that a meeting of will/intentions could be the basis of a binding contract, • although they did not elevate consensus tot the general basis of all contracts.

8. Germanic law:

9. Did not recognise consensus to the extent that it was recognised in Roman law. • Required some final cause/completed performance. But; during course of time, binding force of consensus came to be accepted as part of the philosophy of natural law and the Catholic Church.

10. PACTA SUNT SRVANDA: ONE IS BOUND TO CONTRACT WHEREINTO ONE ENTERED WILLINGLY AND PURPOSEFULLY.

11. 2. The Term “Consensus”.

12. MEETING OF THE MINDS = BASIS OF A CONTRACT. • CONTRACT COMES INTO EXISTENCE WHEN PARTIES ARE AD IDEM ON CREATING AN OBLIGATION/S. • WHY A CONTRACT? • Make intentions clear. • Creates legal certainty. • Good faith. • Protection of reasonable expectations. • Prevention of undue risks.

13. “Will” is formed by the following: • 1. MOTIVES: • Own motive plays no role in question whether consensus exists. • Other party is innocent and did not move you to contract. • False establishment of motive: Leads to voidability of a contract: Misrepresentation.

14. Motive as yet unknown: Other party has no knowledge of your motive to enter into contract. Two parties may have totally different motives at signing of contract. No consensus exists.

15. 2. DECISION: • Decisions are reached after having established a motive. • “Legal will” requires parties to reach consensus on all aspects of the contract. • Other party still carries no knowledge of the decision: it hasn’t been conveyed yet.

16. 3. DECLARATIONS OF WILL: • So-called “offer and acceptance”- declarations. • Hutchison et al Chapter 2.

17. 3 THEORIES FOR DETERMINING THE PRESENCE OF CONSENSUS

18. 1. The Will Theory • Consensus is found in “meeting of the minds” of contracting parties. • Consensus animorumanimocontrahendi. • Elements of consensus:

19. Elements…. • i. Contractants must agree on consequences they wish to create. • ii. Parties must intend to bind themselves legally. • iii. Parties must be aware of their agreement.

20. Advantages of Will Theory: • Expressed in terms which are fundamental to our society. • Strong historic roots in Roman-Dutch law. • Functions satisfactorily as an explanation for contractual liability where parties are in agreement. • Functions satisfactorily in cases of absence of liability.

21. Critique against Will Theory: • Experiences problems with explaining misrepresentation and error. • Fails to explain doctrine of representation satisfactorily. • Fails to explain doctrine of reservatiomentalis. (reservation within mind). • Differs form case law concerning moment of reaching consensus (inter absentes).

22. Critique… • Difficult to prove in court. • Follows a subjective, rather than an objective approach. • See cases where Will Theory was preferred.

23. 2. THE DECLARATION THEORY • Consensus is to be found in objective coinciding DECLARATIONS of contracting parties. • Contractants are bound NOT by what either of them may have had in mind, but by their objective intentions of will.

24. Advantages of declaration theory: • See quote by Wessels J on p. 14 of study guide.

25. Critique against declaration theory: • Subjective nature. • Causes problems with simulated acts. • Clauses forced upon parties they did not intend. • Doctrine of representation: Principal or representative.

26. Critique… • Contracts inter absentes: As soon as declaration of acceptance has been made, offeror is bound, although he/she is not aware of acceptance. • Trollip v Jordaan: • Courts can only judge from external facts whether this has or has not occurred…

27. 3. THE RELIANCE THEORY: • Consensus is established in the bonafides of the inter partes-relationship. • Contract is based on the intention of the one party and the reasonable reliance that the other party has the same intention.

28. Critique: • Subjective nature. • Extrinsic evidence must be brought to determine reliance. • It is expected of a party who possesses more knowledge to make available all information to the other party regarding the fine print.

29. Spindrifter v Lester Donovan • Respondent – organiser of trade exhibitions. • Appellant was prospective exhibitor. • Parties entered into standard contract which contained “General Conditions”. • Clause 13 of above: • In the event of the respondent varying date of exhibitions, “the varied exhibition shall for all purposes be held to be the exhibition to which the agreement relates.”

30. Spindrifter… • Respondent informed applicant that the date for a certain exhibition had changed. • Applicant said the varied date was unsuitable and cancelled the contract. Respondent filed for breach of contract by appellant. • Appellant contented the following:

31. Spindrifter… • Appellant had signed the form hurriedly and without reading it. • Was put under considerable pressure to sign by respondent. • Parties were not ad idem as to the essential terms in the contract. • Thus: Consensus had been lacking at time of contracting.

32. COURT DECIDED THAT IF APPELLANT HAD BEEN PROPERLY INFORMED OF CLAUSE 13, HE WOULD NOT HAVE SIGNED THE DOCUMENT. • THEREFORE, HE WAS UNDER IUSTUS ERROR, WHICH CAUSED DISSENSUS. • APPEAL WAS UPHELD.

33. MISTAKE (“ERROR”) • See pp.16-18 of study guide. • Material mistake: Already present at declaration of will. • Error in motive: consensus exists at declaration of will, but mistake exists in the motive. • See Du Toit v Atkinson Motors- misrepresentation (intentional, negligent, innocent).