Law of Obligations - Learning Unit 2 (Contracts and Capacity)
General contract essentials
A contract is a deliberate legally binding agreement between two or more competent parties. An agreement is not automatically a contract; there are 6 requirements for a valid contract: ext{contractual capacity}, ext{ agreement}, ext{ formalities}, ext{ certainty}, ext{ possibility of performance}, ext{ legality}.
Minors: overview of contractual capacity
Two age-based categories govern minors: 0-7 years have no contractual capacity; 7-18 years have limited contractual capacity; attainment of majority occurs at 18. A minor’s contracts depend on guardian involvement or later ratification.
Minors (0-7 years)
Minors under 0-7 have no contractual capacity. They may only be part of a contract if a parent or guardian enters into it on their behalf.
Minors (7-18 years)
Minors aged 7-18 have limited contractual capacity and require guardian assistance. Guardian consent must be given, either prior to or at the time of concluding the contract; if consent is not obtained by completion, the contract is voidable. Consent can be express or implied; informed consent means the guardian knew the material aspects of the contract. Such contracts are called assisted contracts.
Who is a guardian?
Guardians are those with legal authority and a duty of care over the minor's person and property. The Children’s Act, 2005 regulates guardianship:
The biological mother is the default guardian with full parental responsibility, regardless of marriage.
The biological father is a guardian if married to the mother; if not, guardianship may be awarded by court based on residence or maintenance contributions.
A minor may have one or two guardians depending on circumstances; most contracts require only one guardian unless immovable property is involved.
Types of consent and guardianship
Consent can be express (stated) or implied (inferred from circumstances). Guardians must act in the minor’s best interests. For immovable property, both guardians must consent.
Ratio: liability under an assisted contract
A contract formed is legally binding between the minor and the other party; the guardian bears no personal liability. The rights and duties apply to the minor and the other contracting party only.
Ratification
To form a valid contract, a minor (7-18) must be assisted. If not, the contract is unassisted and voidable. Ratification converts an unassisted contract into an assisted contract:
Minor ratifies after becoming a major within a reasonable time; or
A major can consent before the minor becomes a major.
Effect: the contract becomes an assisted contract and binding.
Restitutio in integrum (restitution in integrum)
This remedy corrects a burdensome/unwanted contract where a guardian acted for the minor without consent. The minor may apply to the court via: independently after majority, with guardian’s assistance, or with a court-appointed representative. Effect: the contract is set aside and parties restore each other to the original position.
Common-law position: unassisted contracts
An unassisted contract is voidable (not automatically void). The innocent party may either validate (via ratification) or render void. Such contracts are often called limping contracts because they may be enforceable against the contracting party who has full capacity.
Effects of contract continuation vs set-aside
If continued and ratified: the contract becomes valid; the minor acquires rights and duties and must perform. Both parties perform.
If set aside/repudiated: the contract is void; the minor can recover what they have performed or given (restitutio in integrum). The other party may recover value via unjustified enrichment or rei vindicatio where applicable.
Remedies for unassisted contracts
Unjustified enrichment: the enriched party must return money/value if there is no legal justification.
Rei vindicatio (vindicatory action): owner can recover an object regardless of where it is.
Rei vindicatio and restitution basics
Both remedies require the minor to return value or goods received if the contract is set aside; they reflect ownership and fairness principles.
CPA considerations for minors
Section 39(1) of the CPA provides that a contract for goods/services is voidable if the consumer is an unemancipated minor, the agreement lacked consent of an adult responsible for the minor, and the agreement was not ratified after emancipation or adulthood. The CPA does not apply to all contracts; it covers sales in the ordinary course of business and where capacity was misrepresented or concealed.
Married minors: capacity changes
When a minor marries, they immediately attain majority, retaining that status even if the marriage ends (death/divorce). This grants them the same contractual capacity as a major.
Emancipated minors
Emancipation frees a minor from parental authority, granting them full contractual capacity as a major. Can occur via court order or tacit emancipation (understood/ implied independence).
Tacit emancipation
Tacit emancipation occurs when a guardian acknowledges the minor as sufficiently independent for commercial activities. Proof is required, including the relationship and living arrangements.
Marriage: types of marital property regimes
Community of property (CoP): joint estate; assets and liabilities of both spouses are pooled; default regime unless antenuptial contract is signed.
Out of community of property (Out of CoP): separate estates; each spouse can contract independently; antenuptial contract required.
Marriage in CoP: consent and contract validity
General rule: both spouses have full contractual capacity over joint estate. Some contracts require consent from both spouses due to the importance of the asset or obligation. The Matrimonial Property Act, 1988 details consent types.
Matrimonial Property Act consent types
1) Written consent with two witnesses for the most important contracts (e.g., sale/mortgage of immovable property, surety, certain credit agreements). The contracting spouse signs; the other spouse signs consent; two witnesses attest.
2) Written consent of the other spouse for transferring valuable assets (e.g., shares, insurance policies, large withdrawals). Both signatures required.
3) Express or implied consensual capacity for less important contracts (donations, sale of movable property); consent may be non-written.
Marriage out of CoP
No joint estate; each spouse owns their own property and has full contractual capacity over it. No consent from the other spouse is required for individual contracts.
Antenuptial contracts and registration
To conclude a marriage out of CoP, both parties sign an antenuptial contract in front of a notary; the antenuptial contract must be registered at the Deeds Office within 3 months of the marriage.
Accrual vs without accrual in marriages out of CoP
With accrual: assets and liabilities accrued during the marriage are shared upon dissolution; earnings during marriage are considered for accrual.
Without accrual: each spouse retains assets/losses acquired during the marriage; at dissolution each leaves with their own estate; liability sharing is minimized.
Household expenses: liability for both spouses
Regardless of CoP or Out of CoP, both spouses are jointly and severally liable for household expenses.
Drunken persons
A person who is extremely drunk lacks contractual capacity at the time of contracting; such contracts are void. If a drunken person gained a benefit, they may be required to return it.
Insolvent persons: overview
An insolvent person has liabilities exceeding assets (bankrupt status). A sequestration order places the insolvent’s assets under a trustee.
Insolvent contractual capacity
An insolvent generally has full contractual capacity except for three restricted areas, as per the Insolvency Act, 1936:
1) Contracts that would dispose of assets that form part of the insolvent estate; 2) Contracts that would negatively affect the insolvent estate; 3) Contracts that would place the insolvent as a general dealer or manufacturer.
If the insolvent wishes to enter into any of the above contracts, they must obtain the trustee’s consent; without it, the contract is voidable at the trustee’s instance.