Unit-1-introduction-to-law-of-contract
.pdf
School
Tshwane University of Technology**We aren't endorsed by this school
Course
DPSU 19
Subject
Law
Date
Jan 8, 2025
Pages
11
Uploaded by DeaconEnergy10256
UNIT 1 Introduction to law of contractCommercial Law for Accountants 2 (Vaal University of Technology)Scan to open on StudocuStudocu is not sponsored or endorsed by any college or universityUNIT 1 Introduction to law of contractCommercial Law for Accountants 2 (Vaal University of Technology)Scan to open on StudocuStudocu is not sponsored or endorsed by any college or universityDownloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
LEARNING UNIT 1: INTRODUCTION TO THE LAW OF CONTRACTRead: M.A. Fouché; 8thEdn; Legal Principles of Contracts and Commerciallaw; Chapter 1, 2 and 41.1STUDY OBJECTIVESAfter studying this study unit, you should be able to:De昀ne the basic concepts which will be used during the course of thissubject;Explain where the law of contract 昀ts into the larger legal system;Explain what is meant with the law of obligations;De昀ne the law of contract;Explain where we 昀nd the legal rules regulating contract law;De昀ne a contract;Distinguish between a unilateral and reciprocal contract; Name the parties to a contract.The division of the law is merely for background knowledge and willnotbe examined1.1 DIVISION OF THE LAWWe now know that we are going to study legal rules. However the body oflegal rules is very extensive and we will only be studying a very smallsubdivision of the law called “the law of contract”. The law of contract 昀tsinto a larger legal system. In order to get an understanding of where the lawof contract 昀ts into the larger legal system you will be brie昀y introduced tothe divisions of the law.Law is traditionally divided into International law (also known as PublicInternational Law) and National law. International law regulates therelationship between di昀erent states (e.g. Between South Africa andBotswana).This will include the legal rules regulating the boundaries ofstates, the territorial waters of states, and the air space of states etc.1Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
National law refers to the law of a speci昀c country (e.g. South Africa). Wesaw in the 昀rst lecture on the “Concept law” that the legal rules of a countryis in昀uenced by the good morals of society, which ultimately derives fromthe personal religious convictions of the members of that society. We alsosaw that in South Africa the values enshrined in the Constitution (especiallyin the Bill of Rights) will determine the content of the legal rules in SouthAfrica. National law can be divided into two main categories:Substantive law; andFormal law.Substantive lawrefers to those legal rules which de昀nes the rights andduties of persons and of the state. Substantive law can again be subdividedinto:Public law refers to those legal rules which regulates the relationshipbetween persons (sometimes called “legal subjects”) and the state andinclude:oConstitutional law;oAdministrative law; andoCriminal lawPrivate law refers to those legal rules which regulates the relationshipbetween persons in society and include:oThe law of person and family;oThe law of things;oThe law of succession;oMercantile law; andoThe law of obligations. The law of obligations include:Contract law, which will be the focus of this subject;Law of delict;Law of enrichment;2Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
And various other sources e.g. a parent’s duty to supporthis/her child.Formal lawrefers to those legal rules which regulates the enforcement of thesubstantive law (i.e. the rights and duties of persons and of the state).Formal law can be divided into:The law of procedure, which in turn can be subdivided into the law ofCriminal Procedure and the law of Civil Procedure which determinesthe procedures which must be followed when enforcing criminal or civillaw.The law of evidence which determines what facts must be proved in acourt case and how such facts must be proved. ;The law of the interpretation of statutes and contracts and other legaldocuments, which determines the meaning of words and phrases usedin legal documents in order to give meaning to those documents.Everything from here on is examinable1.2BASIC CONCEPTS WHICH WILL BE USED DURING THE COURSEOF THIS SUBJECT1.2.1Contract: An agreement between two or more persons, which is legallyenforceable. A contract gives rise to legal rights and legal duties.1.2.2 Person: Includes a natural person (human being) or a legal person(body corporate e.g. a company).1.2.3Debtor: The person upon whom a legal duty rest.1.2.4Co-debtors: The persons upon whom legal duties rest.1.2.5Creditor: The person who has a legal right.1.2.6Co-creditors: The persons who have legal rights. 1.2.7 Unilateral contract: A contract in terms of which one party acquiresonly right/s whilst the other party acquires only duty/ies1.2.8Reciprocal contract: A contract in terms of which both parties acquireright/s and both parties acquire only duty/ies3Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
1.2.9 Legalobligation:alegalbond(oralegalconnection/tie/link/relationship) between two or more persons.1.2.10Legal right: A legal right entails a legally enforceable claim by acreditor against a debtor in terms of which the creditor is entitled toreceive performance from the debtor, or entitled that the debtorrefrains from doing something or entitled that the debtor toleratessomething.1.2.11Legal duty: A legal duty entails a legally enforceable obligationby the debtor towards the creditor, in terms of which the debtor isobliged to render performance to the creditor, or refrain from doingsomething or tolerate something.1.3 THE LAW OF OBLIGATIONSWe saw earlier that legal obligations can be created either by contracts(legally enforceable agreements), delicts (unlawful, culpable conduct whichcauses harm or damage to another person); the law of enrichment; or othercauses. The 昀rst question which comes to mind is “what is a legalobligation”? A “legal obligation” refers to a legal bond(or a legalconnection/tie/link/relationship) between two or more persons. Alegal obligation creates a personal relationship between two or more parties.We will focus on legal obligations created by contracts.1.4 THE LAW OF CONTRACTThe law of contract prescribes rules for concluding legally bindingagreements. De昀nition: The law of contract can thus be de昀ned as those legal rules whichdetermines when an agreement between persons will be legally binding (i.e.enforceable in a court of law) and to some extent what the legal rights andlegal obligations of parties to the contract will be.4Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
1.5 WHERE SPECIFICALLY DO WE FIND THE LEGAL RULESREGULATING CONTRACT LAW?The sources of South African law include:Legislation:oThe Constitution;oOrdinary statutes e.g. The National Credit Act;The Common law, which refer to the Roman law, Roman-Dutch law andEnglish law which has developed over the last 2000;Case law (also called Judicial precedent), which refers to theinterpretation of legislation and the development of the common lawby our courts;Customary law (or custom), which refers to unwritten rules of aparticular group in society which:oare recognized and observed by the community;ohave existed for a long time in that community;oare reasonable; andodo not contradict existing legal rules (e.g. legislation or caselaw).Thus when we enquire into the law of contract (i.e. into the legal rules whichgoverns contracts) we will have to refer to the sources of the SA law asindicated above. 1.6 WHAT IS A CONTRACT?The 昀rst question which comes to mind is “What is a contract?”. In order tohave a basic understanding of what a contract is it is necessary to de昀ne acontract. We will work with the following de昀nition of a contract: A contract isan agreement, between two or more persons, which is legally enforceable. 5Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
By de昀nition, the term “agreement” implies the involvement of more thanone person. (It is therefore called a multilateral act/ a many-sided act) Thissimply means that a person cannot conclude an agreement withhim-/herself. Thus an agreement can only come into existence between twoor more persons (called parties to the contract) e.g.:Between A on the one side and B on the other sideBetween A and B on the one side and C and D on the other side;Etc.A “person” refers to either a natural person or juristic (legal) person. Anatural person refers to a human being and a juristic (legal) person refers toa body corporate (e.g. a company). The next question which comes to mind is “When will an agreement belegally enforceable?”. An agreement will be legally enforceable if it meets昀ve requirements, namely:Consensus (which can be divided into, real consensus and apparentconsensus);Contractual capacity;Lawfulness;Formalities; andPerformance.These requirements will be discussed in the following lectures. In short theyentail the following: Before an agreement will be enforced by a court of lawthere must exists:Consensus: Means agreement. We distinguish between realagreement and apparent agreement.Contractual capacity: This means that all the parties to theagreement must have the ability to conclude a legally bindingagreement.6Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
Lawfulness: This means that the terms of the agreement must be inharmony with the good morals (the boni mores) of society and may notcon昀ict with the values promoted by the Constitution.Formalities: This means that any formalities required for theagreement to be legally binding (e.g. writing, signatures or notarialexecution) must be ful昀lled.Performance: This means that the performances which a party oreach party undertake in terms of the agreement, must be clear(certain or ascertainable) and possible of being executed (i.e.performed).1.7 CONTRACTUAL OBLIGATIONS AND PARTIES TO A CONTRACTA contract creates legal rights and legal duties between two or more parties. A legal duty entails a duty to do something, (to give something orrender a certain performance) or a duty to refrain from doingsomething (not to do something or to tolerate something), which willbe enforceable by law; oThe person upon whom the legal dutyrest to do something orrefrain from doing something is called the “debtor”;oIf a legal duty do something or refrain from doing something reston more than one party, the parties are called “co-debtors”.A legal right entails a right to receive something or to receive a certainperformance or to be entitled to another party refraining from doingsomething (to be entitled to another party not doing something or toanother party tolerating something), which will be enforceable by law.oThe person who has a legal rightto expect the debtor to dosomething or refrain from doing something is called the“creditor”;oIf more than one party have a legal right to expect the debtor todo something or refrain from doing something, they are called7Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
“co-creditors”.The legal rights which the creditor is entitled to in terms of this relationshipare called “personal rights” and the legal duties resting on the debtor arecalled “personal duties/obligations”. We saw in learning outcome 1 that thepurpose of the objective law (i.e. legal rules) is to create subjective rights.Thus by concluding a contract, the parties to the contract create personalrights and personal duties//obligations for themselves. We may distinguish between a unilateral contract and a reciprocal contract.Unilateral contractA unilateral contract is a contract where one party acquires right/s onlywhilst the other party acquires duty/ies only. E.g. a donation. John gives hiscell phone to Thabo for free. Thabo only acquires the right to claim the cellphone whilst John acquires the duty to deliver the cell phone.JohnThaboDuty: to deliver cell phoneRight: to receive cell phoneReciprocal contractA reciprocal contract is a contract where both parties acquire right/s andboth parties acquire duty/iesE.g. A contract of sale. John sells his cell phone to Thabo for R100. Bothacquire rights and dutiesJohnThaboRight: to receive R100Right: to receive cell phoneDuty: to deliver cell phoneDuty: to pay R100 Note that an obligation may exist between one or more persons on each sidee.g.: e.g. Alex, Bongani and Cynthia decide to start a business. Together theyborrow R10 000 from Big Bank to start the business. Alex, Bongani andCynthia are co-debtors and will jointly and severally (in solidium)be8Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
responsible for repaying the debt (this means that the bank can claim the fulloutstanding debt from one of the co-debtors and he/she will have to pay thefull amount and claim the pro-rata share from the other co-debtors afterpaying).Big Bank (one side)Alex, Bongani and Cynthia (otherside)CreditorJoint debtors (Co-Debtors)Thus we see that every legal right has as counterpart a legal duty/obligation.An obligation usually is of an economic (昀nancial/money) nature (if thedebtor does not perform the creditor’s damage can be calculated in money).Obligations are temporary in nature. It will NOT exist forever, but will endwhen performance takes place.TUTORIAL QUESTIONS1)Explain where the law of contract 昀ts into a larger legal system2)Explain what is meant with the law of obligations;3)De昀ne the following terms:a)Legal obligationb)Legal rightc)Legal duty 4)De昀ne the law of contract5)Explain where we 昀nd the legal rules regulating contract law6)Brie昀y explain the following terms:a)A Contractb) Consensusc)Contractual capacityd) Lawfulnesse) Formalitiesf)Performance9Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588
7)De昀ne the following terms:a)Unilateral contractb)Reciprocal contractc) Debtord) Co-debtorse) Creditorf)Co-creditors10Downloaded by Mpho Sebela (mphosebela5@gmail.com)lOMoARcPSD|22262588