Law of Contract: South African study guide

About this module

Law of Contract teaches when an agreement becomes legally binding, what it obliges each side to do, and what happens when someone does not perform. Educational tool, not legal advice. All law is South African.

Level: usually second year (LLB); some universities teach it in first year or across a year. Prior knowledge: Module 1 (sources, precedent, interpretation, the Constitution) and Module 2 (capacity of minors and of people with mental illness).

How this guide teaches

Every chapter is taught like a teacher would: plain language first, a problem to start, "In short" summaries, case boxes (Legal issue / Held / Why it matters; facts only where they help distinguish a case, never amounts), memory aids, common mistakes, and a five-sentence recap. Cases are the prescribed or commonly taught ones, cross-checked across universities; where a prescribed case cannot be found or checked, a verified case on the same point is used and the substitution is recorded. Worked examples use the same labels as Modules 1 and 2: The facts / Issue / Principle / Application / Conclusion.

Common cases and how they are checked

The cases below are the ones this module teaches from: every case named in the Rhodes outlines, plus the leading appellate cases the prescribed textbooks build each topic on. Each case is checked against the judgment (SAFLII or lawlibrary.org.za) when its chapter is written, and its status is updated here.

Basis: R = named in a Rhodes outline; L = leading Constitutional Court, SCA or Appellate Division case on the point.

Substitutes. Some planned cases could not be checked online and were replaced by verified cases on the same point: Brink v Humphries & Jewell for Burger v CSAR (signed documents); Medscheme v Bhamjee for Arend v Astra Furnishers (duress, now cited only for the requirements); Jamieson v Sabingo for Kergeulen Sealing (time and place of conclusion); Southernport and NBS Boland for Letaba Sawmills (certainty); Eldacc v Bidvest for Crookes v Watson (quoted through Eldacc). Rhodes-listed cases that could not be found online are listed in the C8 source notes.

Module blueprint

The module follows a contract through its life: is it valid, what does it say, was it broken, what can the other side do, and how does it end. Thirteen chapters, taught in that order. (C12 on parties follows cession here so that the earlier chapter numbers stay unchanged; many textbooks teach parties before terms.)

Outcomes. By the end, a student can: identify and apply the requirements for a valid contract (LC1–LC7); identify and interpret its terms (LC8); identify the form of breach (LC9) and choose and justify the right remedy (LC10); explain cession and delegation (LC11), who the parties are and how co-debtors are liable (LC12), and the ways obligations end (LC13); and answer a full contract problem question in the Issue / Principle / Application / Conclusion format, citing the leading cases (LC14).

Depth. Second-year LLB, to the standard of the Rhodes A and B courses. Each chapter follows the Module 1 and 2 template: a starting problem, the big picture with key words, teaching sections with case boxes, common mistakes, a five-sentence recap, then practice (worked examples, flashcards, a quiz) and source notes.

Links back. Capacity of minors and of people with mental illness (Module 2, P6 and P8); interpretation (Module 1, T8); precedent and the Constitution (Module 1, T5 and T9); prescription (Module 1, T7).

C1: What a contract is

B. Start with a problem: three promises

On Monday, Thandi sends three WhatsApp messages:

1. To Sipho: "I'll sell you my laptop for R4 000." He replies: "Deal. I'll pay on Friday."
2. To her friend Lerato: "I'll take you to dinner for your birthday."
3. To her neighbour: "I'll pay you R500 if you help me carry my couch." He helps, and she refuses to pay.

On Wednesday a stranger offers Thandi R5 000 for the laptop.

Think first: Which of these promises can be enforced in court? What is the difference between the laptop deal and the dinner?

C. The big picture

In short: a contract is an agreement the law will enforce. It creates obligations, and it is valid only if six requirements are met. Courts enforce contracts because people are free to bind themselves, but they will not enforce terms that offend public policy.

By the end of this chapter you should be able to answer five questions:

1. What is a contract, and what does it create?
2. What are the six requirements for a valid contract?
3. What is the difference between a void and a voidable contract?
4. Why does the law enforce contracts, and where does it stop?
5. How is a claim in contract different from a claim in delict?

Key words

D. Teaching the concepts

C1.1 What a contract creates

In short: a contract creates obligations: one party must do something, and the other may demand it.

A contract is an agreement between two or more people, made with the intention of creating legal obligations. Each obligation has two sides: the debtor, who must perform, and the creditor, who has a personal right to claim performance. Performance can be to give something (pay R4 000), to do something (deliver the laptop), or not to do something (not to open a competing shop).

Not every agreement is a contract. An agreement to go to dinner is a social arrangement: the parties do not intend to be legally bound, so there is no contract.

Back to Thandi. The laptop deal looks like a contract: both sides meant to be bound, and the terms (laptop, R4 000) are clear. The dinner promise is social, not legal. The couch promise is also a contract: Thandi offered payment in return for help, and the neighbour accepted by helping (C2).

C1.2 The six requirements for a valid contract

In short: a contract is valid only if all six requirements are met; if one is missing, there is no contract at all.

1. Consensus: the parties really agree (C2, C3), and the agreement was not obtained improperly (C4).
2. Capacity: each party has the legal capacity to contract (C5; Module 2, P6 and P8).
3. Legality: the agreement is not against the law or public policy (C6).
4. Possibility: performance is possible when the contract is made (C7).
5. Certainty: the terms are clear enough to be enforced (C7).
6. Formalities: where the law requires it, for example writing and signatures for a sale of land (C5).

Memory aid: "Can Children Legally Purchase Certain Forms?" Consensus, Capacity, Legality, Possibility, Certainty, Formalities.

Void or voidable? If a requirement is missing, the contract is void: it never existed, and neither side can enforce it. But if the parties did agree, and the agreement was obtained by lies, threats or pressure (C4), the contract is voidable: it is valid until the innocent party chooses to rescind it.

[embedded content: the life of a contract · where each chapter fits]

Validity comes first: if the contract is void, there are no terms to read, no breach and no remedies.

Checkpoint 1. Musa signs a contract to buy a car. He later discovers that the seller lied about its mileage. Is the contract void or voidable? Why? (Answer: CP1.)

C1.3 Why the law enforces contracts, and where it stops

In short: people are free to make their own bargains, and courts hold them to those bargains, unless enforcing a term would be against public policy.

Two linked ideas drive contract law. Freedom of contract means people may choose whether, with whom and on what terms to contract. Pacta sunt servanda means that agreements, once made, must be kept.

Case: Barkhuizen v Napier (Constitutional Court, 2007)

• Legal issue: How are contract terms tested against public policy under the Constitution, and when will a time-bar clause be enforced?
• Held: Public policy is now drawn from constitutional values. "Self-autonomy, or the ability to regulate one's own affairs, even to one's own detriment, is the very essence of freedom and a vital part of dignity" (para 57), and pacta sunt servanda gives effect to it. A court asks whether the clause itself is unreasonable and, if not, whether it should be enforced in the circumstances (para 56). Without a reason for non-compliance, the time-bar clause was enforced (Ngcobo J; Sachs J and Moseneke DCJ, with Mokgoro J, dissented).
• Why it matters: it is the starting point for how the Constitution shapes contract law (C6).

So freedom of contract is itself a constitutional value. But it has limits: a court will not enforce a term that is contrary to public policy. In Beadica (2020), the Constitutional Court added that fairness, reasonableness and good faith are not free-standing grounds for refusing to enforce a contract; a court may refuse only where a term or its enforcement is so unfair, unreasonable or unjust that it is contrary to public policy (C6).

C1.4 Why an agreement binds: a first look at the theories

In short: the law looks first for real agreement; where people seemed to agree but did not, it protects the person who reasonably relied on that appearance.

Three theories explain why a contract binds:

• Will theory: a contract binds because the parties' minds actually met.
• Declaration theory: a contract binds because of what the parties outwardly said or did. In SAR&H v National Bank of SA (1924) Wessels JA said, in words often quoted, that the law looks at the outward signs of agreement rather than the parties' private thoughts.
• Reliance theory: where there was no real agreement, a party may still be bound if they created a reasonable impression of agreement on which the other party relied.

South African law starts from the will theory and uses the reliance theory to fill the gaps. Chapter C3 explains how.

C1.5 Contract and delict

In short: where the parties' relationship is governed by a contract, a court is slow to let one of them sue in delict for financial loss instead.

The same facts can sometimes support a claim in contract (breach of a promise) and in delict (wrongful, negligent harm). The courts have limited this overlap for pure financial loss.

Case: Lillicrap, Wassenaar and Partners v Pilkington Brothers (Appellate Division, 1984)

• Legal issue: Can a party to a contract sue in delict for pure economic loss caused by breach of a duty that the contract governs?
• Held: No. Where the parties set out their duties in a contract, it is undesirable to extend delictual liability to those duties (Grosskopf AJA; Smuts AJA dissented).
• Why it matters: where parties have set their rights and duties by contract, a claim for pure financial loss belongs in contract, not delict.

Case: Trustees, Two Oceans Aquarium Trust v Kantey & Templer (Supreme Court of Appeal, 2005)

• Legal issue: When is negligently caused pure economic loss recoverable in delict, and does the possibility of contractual protection matter?
• Held: Only where policy considerations support a legal duty. That the plaintiff could have protected itself by contract weighs against imposing a delictual duty (Brand JA).
• Why it matters: a party who could have protected itself by contract will seldom be rescued by the law of delict.

C1.6 Kinds of contracts

In short: contracts are grouped by who must perform and whether the law gives them a name.

Many everyday contracts are also governed by the Consumer Protection Act 68 of 2008, which adds rules on unfair terms and notice of risky terms in consumer contracts (C8).

Checkpoint 2. Is a sale of a car a unilateral, bilateral or reciprocal contract? Explain in one sentence. (Answer: CP2.)

I. Common mistakes

J. Recap in five sentences

1. A contract is an agreement, made with the intention of creating legal obligations, that the law will enforce.
2. It is valid only if there is consensus, capacity, legality, possibility, certainty and, where required, compliance with formalities.
3. If a requirement is missing the contract is void; if agreement was obtained improperly it is voidable.
4. Courts enforce contracts because freedom of contract and pacta sunt servanda reflect constitutional values of freedom and dignity, but not where enforcement would be contrary to public policy (Barkhuizen; Beadica).
5. Where a contract governs the parties' duties, a claim for pure financial loss belongs in contract, not delict (Lillicrap; Two Oceans Aquarium).

Back to Thandi. The laptop sale is a valid contract once both agreed: Sipho's promise to pay on Friday does not stop it from being concluded on Monday, so Thandi cannot sell to the stranger without breaching it. The dinner promise is not a contract. The couch promise is a contract, and the neighbour can claim his R500.

Explain it to a friend. In about 100 words, explain why a promise to take a friend to dinner is not a contract, but a promise to pay for help carrying a couch is.

C1 practice

Checkpoint answers

Worked example: the gym contract

The facts. Nomsa signs a gym contract that says she may not cancel for 24 months, "whatever the circumstances". After six months she loses her job and wants to cancel.

Issue. Must the court enforce the 24-month term?

Principle. Contracts freely made must be kept (pacta sunt servanda), which gives effect to freedom and dignity (Barkhuizen para 57). A court may refuse to enforce a term only if the term, or its enforcement in the circumstances, is so unfair that it is contrary to public policy (Barkhuizen para 56; Beadica).

Application. A 24-month gym contract is not unusual, so the term itself is probably not contrary to public policy. Whether enforcing it now is contrary to public policy depends on the circumstances, such as whether Nomsa could have avoided the problem. Losing a job alone may not be enough. Consumer law may also help her (C8).

Conclusion. On the common law alone, the term will probably be enforced; Nomsa's best argument lies in consumer protection legislation, covered in C8.

Try it yourself. Zola promises his sister R2 000 if she passes her exams. She passes. He refuses to pay. Is there a contract? Hint: ask whether both meant to be legally bound, and look at the six requirements.

Model answer (outline): family promises are often social, not legal, so the key question is whether they intended legal obligations. If they did, all six requirements appear to be met, and Zola must pay.

Flashcards (15)

Quiz (38 marks, about 45 minutes)

Section A (6 marks, 1 each).

1. A contract that lacks one of the requirements for validity is: - A. voidable. - B. void. - C. valid until cancelled. - D. valid if both parties wanted it.
2. Which is not one of the six requirements for a valid contract? - A. Certainty. - B. Possibility. - C. Consideration. - D. Capacity.
3. In Barkhuizen v Napier, the time-bar clause was: - A. struck down as unconstitutional. - B. replaced with a three-year period. - C. found to breach s 34 directly. - D. enforced, because no reason for the delay was given.
4. Pacta sunt servanda means: - A. agreements must be kept. - B. let the buyer beware. - C. the later law prevails. - D. no one may judge their own case.
5. In Lillicrap, the court held that the claim in delict: - A. succeeded, because negligence was proved. - B. failed, because the contract governed the parties' duties. - C. was transferred to the Labour Court. - D. succeeded only for physical damage.
6. A donation is an example of a: - A. reciprocal contract. - B. bilateral contract. - C. unilateral contract. - D. void contract.

Section B (12 marks).

7. Distinguish between a void and a voidable contract, with an example of each. (4)
8. Explain the two questions a court asks under Barkhuizen when a party relies on public policy. (4)
9. Explain why a social agreement is not a contract. (4)

Section C (20 marks).

10. Using the six requirements, explain whether each of Thandi's three promises (section B of this chapter) is a valid contract. (10)
11. "Freedom of contract is a constitutional value, not just a common-law rule." Discuss, with reference to Barkhuizen and Beadica. (10)

Answer key

Q7 (4). Void: a requirement missing, no contract, e.g. an illegal agreement (2). Voidable: valid until rescinded, e.g. agreement induced by misrepresentation (2).

Q8 (4). Is the clause itself unreasonable (2)? If not, should it be enforced in the circumstances that prevented compliance (2)? (Barkhuizen para 56.)

Q9 (4). No intention to create legal obligations (2); so no consensus on legal consequences, and no contract (2).

Q10 (10). Laptop: valid, all requirements met; later payment date does not matter (4). Dinner: social, no intention to be bound (3). Couch: offer of payment accepted by performance; valid (3).

Q11 (10). Barkhuizen: self-autonomy part of freedom and dignity; pacta sunt servanda gives effect to them (3). Limits: public policy drawn from the Constitution (2). Beadica: fairness and good faith not self-standing; refusal only where enforcement is contrary to public policy; courts act sparingly but must not shield contracts that undermine constitutional values (3). Reasoned conclusion (2).

C1 source notes