South African contract law is a modernised form of Roman-Dutch law rooted in canon and Roman legal traditions.Du Plessis, et al. p.11. It governs agreements between two or more parties who intend to create legally enforceable obligations. This legal framework supports private enterprise in South Africa by ensuring agreements are upheld and, if necessary, enforced, while promoting fair dealing. Influenced by English law and shaped by the Constitution of South Africa, contract law balances freedom of contract with public policy considerations, such as fairness and constitutional values. Nature
A contract in South Africa is narrowly classified as an obligationary agreement—it creates enforceable obligations—and ought therefore to be distinguished from liberatory agreements (which discharge obligations; e.g. release, novation), real agreements (which transfer rights; e.g. cession, deed of transfer), and family law agreements (which govern family matters; e.g. marriage settlements).Du Plessis, et al. p.4.This classifactory scheme for agreements comes from Afrikaans legal writing which in turn comes from Dutch. In Afrikaans: verbintenisskeppende ooreenkoms, skulddelgende ooreenkoms, saaklike ooreenkoms, and huweliksooreenkoms. Contracts underpin transactions by providing certainty and recourse in disputes, regulated by principles of good faith and public policy.Van Huyssteen & Maxwell, Contract Law in South Africa, § 50.
Requirements For a contract to be considered valid and binding in South Africa, the following requirements must be met: There must be consensus ad idem between the contracting parties. The parties must have seriously intended the agreement to result in terms which can be enforced. The parties must have the capacity to contract. The agreement must have certain and definite terms. The necessary formalities must be observed. The agreement must be lawful.Gibson 2003:10 The contractual obligations must be possible of performance. The content of the agreement must be certain. The contract must be legally binding The requirements are discussed in greater detail below.
Characteristics A contract has certain characteristic features:
It is a bilateral juristic act. The law attaches the consequences intended by the parties. The parties should be aware that they are creating a legal obligation between them. It can be unilateral, i.e. one party has a duty to perform, or bilateral or multilateral, i.e. both parties have a duty to perform.Van Huyssteen & Maxwell, Contract Law in South Africa, § 50. It is an obligationary agreement. It entails undertakings or forbearances, on one or both sides, to tender certain performances: that is, to give (dare), to do (facere) or not to do (non facere). Alternatively, it may be a warranty that a certain state of affairs exists. If bilateral, it is usually synallagmatic (or reciprocal), meaning that one party's performance is promised in exchange for the performance of the other party.
The modern concept of contract is generalised so that an agreement does not have to conform to a specific type to be enforced, but contracting parties are required to conduct their relationship in good faith (bona fides).
Contract and the law of obligations Contract law forms part of the law of obligations. An obligation is a legal bond (vinculum iuris) between two or more parties, obliging the obligor (the "debtor") to give, do or refrain from doing something to or for the obligee (the "creditor"). The right created by an obligation is personal, a ius in personam, as opposed to a real right (ius in re). The words "creditor" and "debtor" apply not only in respect of a claim for money, but to a claim for anything else that is owed—whether unconditionally, conditionally, or in the future. If an obligation is enforceable by action in a court, it is a civil obligation, rather than the less common and unenforceable natural obligation. "The most important point", in discussing the legal effect of contracts, is "the duty of the parties to perform their obligations".Hutchison & Du Bois, "Contracts", 790.
Contract and delict The primary sources of obligations are contract and delict, the latter being wrongful and blameworthy conduct that harms a person. There is a close similarity between a breach of contract and a delict, in that both are civil wrongs and may give rise to a duty to pay damages as compensation. It is unsurprising, then, that certain conduct may constitute both a breach of contract and a delict (as when, in Van Wyk v Lewis,Case: 1924 AD 438. a surgeon negligently left a cotton swab inside a patient's body), in which case there is concurrent liability, permitting the plaintiff to sue on either basis.
Contract and quasi-contract Another source of obligations is quasi-contract, in which rights and duties arise from something other than consensus. One example is unjustified enrichment, which occurs when wealth shifts from one person's patrimony to another's without legal justification. Where a party transfers an asset to another in performance of a contract that is for some reason invalid, the shift of wealth is without good cause (or sine causa), and an enrichment action for the restitution of the asset lies. The other main types of quasi-contract are negotiorum gestio and indebiti solutio.
Contract and property law Many commercial transactions involve both the law of obligations and property law, and so have both proprietary and obligationary elements. A contract of sale, for instance, obliges the seller to deliver the thing being sold to the buyer. As such, it is the causa traditionis, or underlying reason, for the subsequent transfer of ownership. It does not, however, effect the transfer, which is accomplished by the real agreement (the concurring intentions of the parties to make and receive transfer of ownership). If the underlying contract is invalid, ownership nonetheless passes, because South African law adheres to the abstract rather than the causal system of transfer. The transferor, however, generally has the option of a restitutionary action to recover the property.
Historical development of contract
Roman law Roman law had a closed system of contracts which recognised only four types (e.g. contracts consensu, re, verbis and litteris) that were binding only if "clothed" in special forms and formulas;Harold J. Berman, Law and Revolution, II: The Impact of the Protestant Reformations on the Western Legal Tradition (Cambridge, Mass: Harvard UP, 2003), 157. in other words, Roman law had "a law of contracts, rather than of contract". This distinguishes it from the modern practice of regarding any obligationary agreement meeting certain general requirements as an enforceable contract. Only for contracts consensu (e.g. sale, lease, partnership and mandate) was mutual assent (consensus ad idem) "clothed" in solemnities sufficient to make the agreement enforceable. Any agreement that did not rigidly conform to the four types was referred to as a nudum pactum and was not actionable unless there had been part performance. The development of contracts consensu was prompted by the commercial needs of the growing Roman state, but Roman law never reached the point of enforcing all serious and deliberate agreements as contracts.Du Plessis, et al. p.12.
Roman-Dutch law The Roman-Dutch law of contract, on the other hand, is based on canon and natural laws. Adopting the canonist position, all contracts were said to be an exchange of promises that were consensual and bonae fidei, that is, based simply on mutual assent and good faith. Taking the Christian view that it is a sin to break one's promise, canon lawyers developed the pacta sunt servanda principle under which all serious agreements ought to be enforced, regardless of whether there had been compliance with strict formalities as prescribed by secular law. Under the causa theory, for the contract to be binding it had to have a iusta causa, or lawful motive in line with Christian moral imperatives, arising not only from a lawful or just right, title, or cause of action, but also from love and affection, moral consideration, or past services.Fellmeth & Horwitz, Guide to Latin in International Law (Oxford: Oxford UP, 2011) A nudum pactum was redefined as any agreement unenforceable for lack of causa. All of these principles were applied uniformly through European ecclesiastical courts.
In keeping with Enlightenment values, natural lawyers stripped away the Christian morality from contract law. They redefined a contract as a concurrence of wills, and each party's "promise" was now seen as a declaration of will devoid of moral obligation (will theory). In place of iusta causa developed a general principle of binding force under which any valid contract was both binding and actionable. Canonist substantive fairness shifted to procedural fairness, so good faith and mutual assent were retained as requirements, but just price and laesio enormis were not. Under English rule, public policy was substituted for bonos mores.
Causa and consideration Initially under Roman-Dutch law the broad notion of iusta causa was necessary to create obligations; therefore, for a contract to be enforceable, it had to be shown to be based on a causa.Reinhard Zimmermann (1996), The Law of Obligations: Roman Foundations of the Civilian Tradition, Oxford University Press However, by the 17th century and under the influence of the usus modernus pandectarum, the general principle of binding force had become the rule in the Netherlands.Lynn Berat, "South African Contract Law: The Need for a Concept of Unconscionability", Loyola of Los Angeles International and Comparative Law Review 14, no. 3 (1992): 512. By contrast, under English law, a contract required not causa but rather valuable consideration (ex titulo oneroso). This led to differing practice between, on the one hand, Roman-Dutch law jurisdictions applying either iusta causa or the general principle of binding force, and, on the other, English law jurisdictions applying the doctrine of consideration. During English rule, this difference gave rise to a celebrated dispute in early South African law.See Zimmermann & Visser 166-173.
In the late 19th century, under the general influence of English law 'and the particular dominating influence of John de Villiers CJ’, the courts reinterpreted iusta causa to be valuable consideration and necessary for a valid contract.Alexander v Perry (1874) 4 Buch 59. This was met with fierce resistance by northern Afrikaner jurists like John Gilbert Kotzé, and later rejected outright by the Transvaal Supreme Court in Rood v Wallach (1904) which applied a general principle of binding force.Case: 1904 TS 187, 209. De Villiers, however, refused to concede the point, so that the dispute continued until 1919, almost 50 years after it began, it was settled by the Appellate Division of the South African Supreme Court in the famous case of Conradie v Rossouw,Case: 1919 AD 279 at 317. where the court took the Transvaal view that a binding contract may be constituted by any serious and deliberate agreement made with the intention of creating a legal obligation, and in so doing, simultaneously abolished the iusta causa and consideration doctrines. It seems now to be clear that a causa, be it onerous (ex titulo oneroso) or gratuitous (ex causa lucrativa), is not a separate requirement in the South African law of contract.Du Plessis, et al. p.13. 'That a contract, in order to be valid, must have been seriously intended by the parties [as well as the other obvious elements such as lawful and performable], is a matter of course ... [and] does not need causa as an independent element'.
Basis
Actual subjective agreement