Contract Law - Part One

Contracts are commonplace in everyday commercial life. 

Terms and conditions bind parties to a contract to ensure something either happens - or doesn’t happen. 

So common are contracts that every Apple user will recall having to agree to Apple’s terms and conditions before being able to download a song on iTunes. Most of the time, we consider the “agree” button a nuisance. Something we “have to do” just to play the new “Call of Duty”. 

We simply click “agree” as quickly as possible, just to start playing. 

But do we ever genuinely think about what a contract is or where the concept of a contract originated from? 

In November we will delve into contracts – where they come from, what their purpose is (and other tidbits) so that the next time you have to click “agree” to something, you know exactly why you are doing so… ready?

Where does South African Contract Law originate from?

Contracts – it would seem – are the children of industrialisation, of capitalism, of industry and of business. 

In a society that once operated on a primitive barter system – any exchange of goods and services for other goods and services without exchanging any form of money (Economic Times) –would have no need for formal legal contracts. 

As industry started to boom, so did the formation and entering into of legal contracts. 

As Britannica sets out – 

“Contract law is the product of a business civilization. It will not be found, in any significant degree, in noncommercial societies. Most primitive societies have other ways of enforcing the commitments of individuals, for example, through ties of kinship or by the authority of religion. In an economy based on barter, most transactions are self-enforcing because the transaction is complete on both sides at the same moment. Problems may arise if the goods exchanged are later found to be defective, but these problems will be handled through property law—with its penalties for taking or spoiling the property of another—rather than through contract law”.

South Africa contract law – specifically – has not been formally codified, but it does find its roots within our common law (which naturally changes and adapts over time). And our common law can trace its origins back to Roman-Dutch Law. In fact, according to the African Charter on human and people’s rights - 

“South African common law is mainly the 17th and 18th century Roman-Dutch law that was transplanted to the Cape. This forms the basis of modern South African law and has binding authority”.

Further to the above, the Journal of Commonwealth Law sets out as follows – 

“When one refers to the “common law of contract” in South Africa, one refers not just to the branch of the law made by the courts, but also to the underlying sources of the old Roman Dutch authorities, which remain a binding source of law.”

A (very) brief history of South African Contract Law

According to Britannica and Wikipedia - 

South African contract law is essentially a modernised version of the Roman-Dutch law of contract. Roman-Dutch law was produced by the fusion of early modern Dutch law (of Germanic origin), and Roman, or civil law. Roman – Dutch law was carried by Dutch colonists to the Cape of Good Hope, where it became the foundation of modern South African law. It can be characterised as an uncodified, judge-made legal system based on Roman law as applied in the Netherlands in the 17th and 18th centuries. As such, it’s a variety of the European continental civil law. While Roman-Dutch law was superseded by Napoleonic codal law in the Netherlands (the beginning of the 19th century), the legal practices and principles of the Roman-Dutch system are still applied actively and passively by the courts in countries that were part of the Dutch colonial empire, or countries which are influenced by former Dutch colonies. Like South Africa.

While many people believe that our contracts are based on English Law, the influence of English law can be found mostly in South African criminal law and procedure, civil procedure, evidence, constitutional law, and, particularly, the commercial field of companies, bills of exchange, maritime law, and insurance. The law of tort or delict has also been considerably affected by English doctrines. On the other hand, the laws relating to property, persons, succession, and, to a lesser extent, contract still preserve their predominantly Roman-Dutch character.

It's worth reading scholarly articles such as The Remarkable Survival of Roman - Dutch law for more in-depth information on the topic. 

What is a contract?

In very general terms (and according to Britannica), a contract can be seen as a “promise that is enforceable by law”. This “promise” refers to certain obligations - on both parties – to either do something or a promise to refrain from doing something. These obligations are then enforced by law. 

Whether the parties are mutually agreeing to do something or to refrain from doing something, mutual intention is key. A mutual intention will arise due to the offer to contract, consideration of the offer and then either acceptance or rejection of the offer. These can be seen as the essentials to the creation of a contract (which are considered to be art of common law). Including – 

1. agreement; 
2. contractual intention; and 
3. consideration (Trans-Lex).

But to enter into any agreement, there must be freedom to contract. Meaning, each party to the contract must be in a position to freely decide whether they want to enter into the contract (there must be no impediment), with whom they want to enter into the contract with and on what terms they wish to enter into a contract. Free choice, without external interference is paramount. In simple terms, there can be no duress. 

If one of the parties fails to keep the promise (or at the very least fails to “keep to their end of the bargain”), the other is entitled to seek legal redress or recourse due to non-fulfillment or breach.

Is that what contract law is?In a way – yes. Contract law is the legal framework within which persons can transact (by for example exchanging resources), confident that the law will uphold their agreements and, if necessary, enforce them too.

Courts will take an objective approach to interpreting whether parties have reached an agreement.

With that high- level overview done, lets look at what the requirements of a valid contract are… 

What are the requirements for a valid contract?

It’s important for the following requirements to be satisfied for a valid contract to exist (and be recognized under South African law) – 

1. Consensus - the parties must agree on all the material aspects (rights and obligations) that will arise from the terms of the contract. Simply put, the parties need to be “on the same page”. There must be a formal offer made and there must be a formal acceptance of the offer.  In other words, there must be an intention to be legally bound by the contract.‍
2. Capacity – all the parties to a contract must have the ability to understand the nature and consequence of entering into the contract i.e. parties must understand the result of being legally bound to a contract, either due to age or mental capacity. There must be no impediment to entering into a contract. In South African law, every living person and/or legal entity is presumed to have the capacity to contract unless limited or excluded due to age or other factors.‍
3. Formalities – certain formalities of a contract must be respected. These “formalities” can arise either because they have been prescribed by law or perhaps because the parties have stipulated that certain formalities be met.  Being reduced to writing and signed by the parties are examples of standard formalities.

• But, what about oral contracts? 

While oral agreements are legally binding in South Africa (provided the requirements of a valid contract are met), reducing them to writing (and having them signed by all of the parties concerned) can prevent disputes arising regarding what the actual terms and conditions of the contract are. 

And 

• What about text messages or WhatsApp’s?

The Electronic Communications and Transactions Act 25 of 2002 (ECTA) at Section’s 11, 12 and 22 expressly recognises SMS’s and WhatsApp’s as viable methods to conclude legally binding agreements. SMS’s and WhatsApp’s are formally recognized by ECTA as methods to engage in agreements that give rise to legal obligations. 

1. Legality – quite simply, for a contract to be valid, it must be legally enforceable. If a contract contravenes statute, common law, or public policy it would be considered illegal and unenforceable. For example, an agreement entered into where Party A undertakes to murder Party B, regardless of it being reduced to writing and signed, is illegal and unenforceable. For obvious reasons. ‍
2. Possibility - the rights and obligations created by the contract must be possible to be performed upon entering into the contract. If it refers to the contract commencing the “day a pig flies”, it would obviously not be possible. Pigs don’t fly.‍
3. Certainty - there must be no ambiguity in relation to the material terms of the contract i.e. definitive or determinate content. All the parties to the contract must know – with absolute certainty – what the different rights and obligations arising from the contract are.

If the above-mentioned requirements are met, a valid, enforceable, and binding contract comes into being. Conversely if one of these requirements is absent or is not satisfied, the agreement will be regarded as invalid and unenforceable

What is a boilerplate clause?

You may have come across the term “boilerplate” clause. What is it?

A boilerplate clause refers to standard or general clauses that are included in most, if not all, contracts, usually at the end of a contract. Boilerplate clauses are included in order to deal with how the agreement will “work”, what the position of the parties are, what legal jurisdiction will apply to the interpretation of the contract as well as other points relevant to the transaction.  

While a boilerplate clause is not often thought to be the cause of litigation, it can have an impact on the other clauses in an agreement (perhaps on an agreement as a whole). Why? Because boilerplate clauses often deal with issues such as the interpretation, validity, and enforcement of an agreement.

So, regardless of whether or not they are standard clauses, it’s always good to take a cautious approach when agreeing to them.

Contract Law is complex. We have only covered (a very small) part of what you should keep in mind when trying to understand what a contract entails. 

In our next article we will go through what happens if there is a breach of contract, what remedies are available to you if you find yourself in the position of a breach of contract and whether or not there are any defences that can be raised against non-performance of a contractual obligations. We do hope you will give Part Two a read.

In the meantime, if you have any questions on the information we have set out above or have a personal issue which you want to discuss with a suitably qualified legal professional, do not hesitate to contact us at NVDB Attorneys. 

We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart.