Business_law_TEXTBOOK__1__230307_222120-53-63

4.3 The Moment and Place of Formation of a Contract

  • A contract arises at the moment when consensus is reached between parties.

  • Consensus occurs when each party is aware that the other agrees with them.

  • The point of consensus is critical for determining:

    • If an offer can be revoked

    • To assess if an offer has expired due to time

    • When contractual duties become enforceable (e.g., when interest payments start)

  • The place of formation affects which court has jurisdiction over the contract.

4.3.1 When Offeror and Offeree are Present

  • If both parties are present, it's straightforward to determine the time and place of the contract formation.

  • The contract forms at the time the acceptance is communicated and at the location of the parties.

  • This is based on the information or ascertainment theory, indicating that a contract is formed when the offeror becomes aware of the acceptance.

4.3.2 When Parties are Not Present

  • If the offeror and offeree are not in each other's presence, acceptance is communicated through another medium (e.g., call, letter).

  • In telephone conversations, parties are considered present, and the contract is formed at the moment acceptance is communicated.

  • Example: Nabilah in Cape Town accepts Bill’s offer from New York, forming a contract in New York as Bill learns of the acceptance there.

  • In contrast, with postal contracts, the dispatch theory applies, indicating a contract forms at the time and place the acceptance letter is posted, unless specified otherwise.

4.3.3 Electronic Agreements

  • For contracts made via fax, email, or the internet, the communication method determines if the ascertaining theory applies.

  • If the method allows for instantaneous communication, it parallels being present, applying the ascertainment theory.

  • Electronic Communications and Transactions Act 25 of 2002 outlines that electronic agreements are formed when acceptance is received by the offeror.

  • Reception theory: the effective time is when the complete data message enters the addressee’s information system.

  • If a contract uses both traditional and electronic methods, parties should clarify the time and place of formation.

4.4 Consensus and Defects in Will

  • Consensus is foundational for contract validity.

  • If consensus is missing (like in material mistakes), the agreement is void.

  • If consensus exists but was acquired through improper means (e.g., misrepresentation, duress), the contract is valid but voidable.

4.4.1 Absence of Consensus – Mistake

  • Mistakes occur when parties misunderstand material facts or legal rules related to the contract.

  • Depending on the circumstances, parties may still be held to their intentions.

Requirements for a Mistake to Void a Contract

  1. The mistake must concern a material fact or legal rule.

  2. The fact or rule must be material.

  3. The mistake must be reasonable.

Types of Mistake

  • Must relate to either fact or law.

  • Examples include:

    • Misidentifying contracting parties (e.g., offering a position to the wrong person).

    • Errors in content of the contract (e.g., misunderstanding the subject of the agreement).

    • Mistakes regarding legal interpretations that differ from the law’s perspective (e.g., misunderstanding contract rights).

4.4.1.1 Reasonable Mistake

  • A reasonable mistake is one that a reasonable person would make in similar conditions.

  • If a person is negligent or careless, they cannot escape liability for their mistake.

4.4.2 Improperly Obtained Consensus

  • Instances where one party's assent is obtained improperly include misrepresentation, duress, and undue influence.

4.4.2.1 Misrepresentation

  • An untrue statement made to induce another party into a contract.

  • Misrepresentation must:

    • Be about a material fact.

    • Be made by one party to another.

    • Be unlawful.

    • Induce the contract as it stands.

4.4.2.2 Duress

  • Unlawful threats causing a party to conclude a contract.

  • Aimed at the person’s fear of harm or violence, making the contract voidable.

4.4.2.3 Undue Influence

  • Occurs when one party uses their influence to persuade another against their independent will.

  • Typically observed in relationships with power imbalances (e.g., doctor-patient).

5.1 Introduction to Capacity to Perform Juristic Acts

  • Consensus is vital, but parties must also have the capacity to execute juristic acts to create valid contracts.

  • Legal capacity vs. capacity to act: not all with legal capacity can perform acts successfully.

5.2 Age

  • Age determines a person's ability to appreciate contract consequences.

  • Three age bands for capacity to act:

    1. Under 7 years: no capacity.

    2. 7 to 18 years: limited capacity with guardian assistance.

    3. 18 years and older: full capacity.

5.2.1 Majority

  • Age for majority is now 18.

  • Valid contracts can be concluded upon reaching this age, although prior applications were required for minors aged 18+.

5.2.2 Minority

  • Minors under 7 have no capacity.

  • Minors aged 7-18 have limited capacity, requiring guardian assistance.