Chapter 1 (p1)
Learning Outcomes:
1. What is the law?
COMMERCIAL LAW
2. A history of South African Law
3. Where can you look up South African
CHAPTER 4
Law?
4. The South African court Hiearchy
CONTRACTUAL CAPACITY
Introduction to the law of contracts
Formation of a valid contract
• Contracts can be defined as :
• “an agreement entered into between two or more persons
with the intention of establishing a legal obligation between
them”
• Agreements which are not concluded with
the intention of establishing a legal
obligation between the parties, are not
contracts
• these are called “social agreements”
Requirements for valid contract
1. Contractual capacity – Capacity
to act
2. Agreement – “MOM”
3. Formalities – either by law or
agreement
4. Certainty – clear and certain
5. Possibility – objectively
possible
6. Legality - lawfulness
CONTRACTUAL CAPACITY
Contractual Capacity
• Contractual capacity
is the legal ability to
enter into a legally
binding contract.
• General rules
– Natural persons
generally able to
enter into
contracts unaided
– Juristic persons
also have full
contractual
capacity, except
…
Exceptions regarding natural
persons
• Not every person has capacity to act/enter into legally
binding contracts
• Some natural persons lack contractual capacity
completely, or have limited capacity (i.e., need
assistance)
• For purposes of this lecture, we will look at the issues of
contractual capacity relating to each of the following
categories of natural persons:
• Minors
• Married people
• People who are drunk
• Insolvents
Who is a minor?
• Minors need protection, therefore have
limited or no contractual capacity
• A minor is a person who is less than 18
years old
• A minor can attain full contractual capacity
either through
– By turning 18 years of age
– Marriage
– emancipation including tacit emancipation
Contractual capacity of a
minor
• Minor < 7 = NO contractual capacity
– parent or guardian contracts on behalf of minor
• Minor 7 – 18 = LIMITED contractual capacity
– Assistance of a guardian (e.g., buying motorbike)
– Two legal positions exists:
• Assisted contract
• Unassisted contract
• Who is considered a guardian? A person with legal
authority and duty of care for the person and property of
a child
Legal position of a minor in an
assisted contract
• Assisted contracts
– Guardian agrees to the contract
– May consent at any time
– Can ratify contract afterwards
• Effect of an assisted contract
– Both the minor and the other party are bound-
not guardian
Ratification
• Unassisted can be assisted through ratification (consent given
after minor had already entered into contract). Can be done in two
ways:
1. By Guardian
– Expressly (in writing or verbally)
– Impliedly (conduct)
2. By “minor”
• Minor can ratify (when becoming a major)
• within reasonable time
• Stuttaford v Oberholzer: minor bought motor-cycle without
assistance. Became a major and continued using it and repairing it
– Fell in arrears with payments
– Relied on fact that he was minor at time of contract
– Court held that he had ratified the contract by his actions and
was bound
Acting in best interest of child
• Guardian must always act in best interest of
minor
• If a contract concluded on behalf of the minor is
prejudicial, a court can set a contract aside and
order restitution
• Restitution is when the parties (both the minor
and the other contracting party) are placed in the
position they were in before conclusion of the
contract.
• Wood v Davies – minor sought termination of
contract of sale of a house
Legal position of a minor in an
unassisted contract
• Minor protected
• Other party held liable
• The contract is voidable (valid, reject or affirmed
at the instance of one of the parties)
• Called a “limping contract” – only enforceable
against one party
• Two options:
1. Contract continues
2. Set aside
Legal position of a minor in an unassisted
contract
1. Where the contract continues
• Unassisted minor’s contract ratified by guardian or minor when becoming
major = becomes assisted contract
• Thus, contract valid - minor gets the rights and duties specified in the
contract
• Personally liable to the other contracting party
• Both have to perform into contract
2. Where the contract does not continue
• Repudiation (reject) by minor’s guardian or minor on reaching majority
• Contract void (non-existent)
• Choice is the minor’s
• Restitution must be made – both parties
– rei vindicatio (goods)
– Unjustified enrichment (money)
Legal position of OTHER PARTY
in unassisted contract
• 2 options
– Contract continues (ratified), becomes an assisted
contract
• Both parties must perform in terms of contract
– Contract does not continue (repudiated) – contract
void. Can seek remedy in the following instances:
1. Rei vindicatio & unjustified enrichment
– Must return what is left
2. The minor pretends to be a major by fraudulently
misleading the other party into believing that he has
contractual capacity
– Liability for minor into law of delict (not contract) by
claiming delictual damages
Legal position of contracting
parties into CPA
• Consumer protection Act (CPA) –
introduced to protect consumers
• S 39 (1) of CPA– contract with minor is
voidable if minor has not been
emancipated, contract concluded without
consent or not ratified
• CPA does not apply to all contracts – only
those “in the ordinary course of business”
Contractual capacity regarding
married persons
People can get married either
– in community of property
– out of community of property (with or without
accrual)
• We will discuss the above and the
contractual capacities attached to each
option
Married in Community of Property
• Automatic regime (default position)
• All assets before and after date of
marriage fall into one joint estate
(share profit and loss)
• Full capacity in most cases, but
• Limited capacity in case of specified
contracts - need consent of other
partner
Forms of consent required:
– Written consent of spouse (plus two
witnesses) - sale of immovable property,
surety, credit agreements
– Written consent – sale of valuable assets,
e.g., investment - both to sign
– Express or implied consent – e.g., making
donations and sale of furniture
Marriage out of community of
property
• Parties sign ANC before a notary public
• Registered at Deeds Office [3 months]
• Marriage OCP without accrual
– Separate estates
– Do not share profit/loss
• unfair?
• Marriage OCP with accrual
• Estates – separate
• Each estate accrues own growth
• On ending of marriage – net difference in accrual is calculated
and divided
• Each party has full capacity in respect of own estate
Contractual capacity
regarding drunken persons
• Not bound if so drunk that person doesn’t
realise that she is entering into a contract
or doesn’t understand the terms of the
contract
• Contract considered void
• Would have to return what was received
ito the contract
Contractual capacity
regarding insolvent persons
• Sequestration – control to trustee
• Insolvent - full contractual capacity except 3 areas
(limited capacity) & needs written consent of the trustee:
– Contracts to dispose of assets forming part of
insolvent estate
– Contracts that negatively affect insolvent estate (eg
offering to buy a car)
– Acting as a general dealer or a manufacturer.
• Contracts without consent - voidable at instance of
trustee
