SECTION: 1
Overview of
Contract
TABLE OF CONTENTS
Content
Section 1
Overview of Contracts
Page
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
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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.
Assessment
Criteria
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
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
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1.1
Overview of Contracts
The nature of Contracts
Introduction
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”.
reciprocal = to
give and receive
mutually
Definition of 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.
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.
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1.
Overview of Contracts
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.
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1.
Overview of Contracts
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
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Overview of Contracts
Types of
Contracts
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”.
contingency =
unforeseen event
or emergency
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.
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1.
Overview of Contracts
Can you think of any other Contracts? Talk to a fellow Learner or your
Coach and list examples in the space below.
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Overview of Contracts
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.
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1.
Overview of Contracts
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.
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Requirements for
a valid Contract
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.
formalities =
official procedures;
rules and
regulations
5. When formalities are prescribed for the formation of a specific Contract,
they must be observed.
We will discuss the formalities for the formation
of a contract in Section 3.
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1.2
Overview of Contracts
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.
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Overview of Contracts
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:
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Freedom of
people to Contract
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.
Equality courts =
every magistrate’s
court and High
Court is an equality
court for the area of
its jurisdiction
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
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1.3
Overview of Contracts
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.
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Contractual
capacity of Minors
and Majors
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.
emancipation = a
Minor gaining
Majority status
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.
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Overview of Contracts
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.
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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
Contractual capacity and the various business entities
will be discussed in detail in previous units.
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1.
Overview of Contracts
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.
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1.
1.4
Overview of Contracts
Summary
Summary
Below is a summary of the key learning points of this Section. Read through
them carefully and ensure that you understand all the concepts. Discuss any
uncertainties with your Coach before you move on to the next Section.

A Contract is:
 A lawful agreement
 Concluded between two or more persons
 Within the limits of their contractual capacity
 With the serious intention of creating legally enforceable obligations
 Which meets the requirements set by the law for the formation of a valid
Contract

An obligation is the legal relationship that exists between parties to an
agreement. The conclusion of a Contract gives rise to certain obligations
from each of the parties

A Contract is a particular type of agreement. Not all agreements are
Contracts because not all agreements create obligations

Various types of Contracts include:
 The Contract of sale
 The Contract of lease
 The Contract of insurance
 The Contract of employment

A person cannot Contract with himself/herself unless he/she acts in a
different capacity on each side of the Contract

Only natural persons and legal/juristic persons may enter into Contracts

The law allows people to agree or Contract about anything as long as it is not:
 Illegal
 Immoral
 Impossible

The law may enforce agreements, which are properly made.

If a party fails 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

An agreement can be entered into orally, in writing and by conduct

The following requirements must be met before the Contract is valid:
 The parties must reach consensus
 The parties must have the capacity to act
 The rights and duties must be physically possible
 The formalities in the Contract must be adhered to
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Overview of Contracts
Summary,
continued

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), legally 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

A child under the age of 7 has no capacity to act and cannot conclude
any Contracts

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 age

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

According to the Age of Majority Act 57 of 1972, a person becomes a Major
when he/she reaches the age of 21 and will have the full capacity to act

A prodigal has limited contractual capacity

Mentally ill persons have no contractual capacity and all Contracts
entered into by these persons are invalid

A person concluding a Contract under the influence of alcohol or drugs
can render the Contract invalid

Unrehabilitated insolvents have limited contractual capacity

Rehabilitated insolvents have full contractual capacity. A certificate must
be obtained from the Master of the Court to confirm their rehabilitation
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Overview of Contracts
Use the space below to note you own, additional learning points from this
Section.
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