RC Steenkamp

24 April 2018

REFRESHER

• What are the essential elements of a legally binding contract?

• Contents of the contract?• Express vs implied terms

• Type of implied terms?

• Conditions, warranties and innominate terms?

• Contracts in favour of third parties – examples?

CONTRACTS AND THIRD PARTIES

• ‘Privity of contract’:• General rule regarding all contracts?

• What is the legal effect of consent?

• Exceptions?

• Agency:• Relationship whereby the agent is entitled

to act as a representative of the principal

• Effect on the relationship between:• Third party and agent?

• Agent and principal?

• Principal and third party?

Image: https://www.google.de/search?q=consent&source=lnms&tbm=isch&sa=X&ved=0ahUKEwix5cb8kdDaAhVBECwKHTbmCG0Q_AUICigB&biw=1680&bih=944#imgrc=ktTIiF-JBjwC6M

VOID, VOIDABLE AND UNENFORCEABLE

• Contracts which have fulfilled all necessary/formal requirements and which are enforceable in law are considered VALID

• However, contracts can also be:1. Void;

2. Voidable; or

3. Unenforceable

Image: https://www.google.de/search?biw=1680&bih=944&tbm=isch&sa=1&ei=mrbdWrirA4LawQKRpbywBw&q=checklist+fulfilled&oq=checklist+fulfilled&gs_l=psy-ab.3...11363.13201.0.13309.10.10.0.0.0.0.70.488.10.10.0....0...1c.1.64.psy-ab..0.2.100...0i13k1.0.3XcZLZ69aIA#imgdii=QcN8A-kYFN7BBM:&imgrc=2yCykiu2eCk7LM:

VOID CONTRACTS1• Agreement which was intended to be legally binding

between the parties but is in fact not a valid contract at all

• Such contracts produce no legal effects• ‘Hit man’ contract is the most common example

• Does this mean that all void contracts are illegal? Or that all illegal contracts are void?

• Contract that is void ab initio?

• What is the effect of this on the remedies available to the parties?

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VOIDABLE CONTRACTS2

• Unlike void contracts, voidable contracts are still valid contracts

• The consent of the aggrieved party has been influenced

• Parties decide whether or not the legal obligations enshrined in the contract should continue to exist• The right of election – aggrieved party is entitled to avoid or affirm

• Aggrieved party is entitled to either give full legal effect to the contract or to rescind the contract• What does rescission mean?

UNENFORCEABLE CONTRACTS3

• Void contracts are always unenforceable

• However, certain contracts may neither be void nor voidable but may still be unenforceable

• Limitation periods for enforcement?

Image:https://www.google.de/search?q=product+guarantee&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjJ15eVuNDaAhXNbVAKHTLaBKcQ_AUICigB&biw=1680&bih=944#imgdii=fF_31jWdLcGS1M:&imgrc=2sX2wVzvC_t6EM:

Image: https://www.google.de/search?q=product+guarantee&source=lnms&tbm=isch&sa=X&ved=0ahUKEwjJ15eVuNDaAhXNbVAKHTLaBKcQ_AUICigB&biw=1680&bih=944#imgdii=uKt5cpfK0amGuM:&imgrc=kk9cnxl3J4vxLM:

• Several reasons could render a contract void or voidable:1. Capacity;

2. Illegality;

3. Mistake;

4. Misrepresentation;

5. Duress;

6. Undue influence

VOID OR VOIDABLE?

CAPACITY1

• Capacity refers to the ability of a person to enter into a binding contract• General rule?

• Most common exceptions to the general rule?

• Such persons are unable to form the necessary intention• Legal policy therefore attempts to protect such

people from their own inexperience

• Void or voidable?Image:https://www.google.de/search?biw=1680&bih=944&tbm=isch&sa=1&ei=k9ndWuyaIY7bwQLA8rzYCg&q=drunk&oq=drunk&gs_l=psy-ab.3..0i67k1l2j0l8.65482.66119.0.66378.5.4.0.1.1.0.74.226.4.4.0....0...1c.1.64.psy-ab..0.5.232....0.O8P8ay0LAHA#imgrc=lT2LYeSieF-DoM:

ILLEGALITY2

• Principle of freedom of contract?

• Contracts concluded for the purposes of illegal activities will not be enforced by the law

• Two types of illegality• Illegality is the aim of the contract – gun for hire;

• Illegality which results when a contract is against public policy

• Void or voidable?

MISTAKE3

• Error in the meaning of words, laws, or facts which results in one or more of the parties not fully understanding their duties or obligations under the contract

• 3 types of mistake:1. Unilateral mistake;

2. Common mistake;

3. Mutual mistake

• Void or voidable? Image: https://www.google.de/search?tbm=isch&sa=1&ei=yPDdWojsBIrdwQLDhYXoCg&q=mistake&oq=mistake&gs_l=psy-ab.3..0l10.188153.190138.0.190286.11.8.2.1.1.0.64.370.8.8.0....0...1c.1.64.psy-ab..0.11.436...0i67k1j0i10k1j0i5i30k1.0.qG4Rajlk5nk#imgrc=nFEs0WDk0SwASM:

MISREPRESENTATION4• False statement of past or existing fact made by one party before or at the time the

contract is made• Addressed to the other party; and• Persuades other party to enter into the contract

• Must induce a reasonable person to enter the contract

• Types of misrepresentation:• Fraudulent; • Negligent; and • Innocent

• Void or voidable? Image: https://www.google.de/search?biw=1680&bih=944&tbm=isch&sa=1&ei=lfzdWtq-EsjOwAKG04D4DQ&q=bad+conscience&oq=bad+cons&gs_l=psy-ab.3.1.0l10.102368.105751.0.107892.12.11.1.0.0.0.124.587.6j3.10.0....0...1c.1.64.psy-ab..1.10.591.0..0i67k1.27.7mEp9fWdzEI#imgrc=to7NOY7kljpiaM:

DURESS5• Threat used to force someone to enter into a contract

• Is actual or threatened physical violence required?

• Is economic duress possible?

• In order to prove duress, it needs to be asked whether the conduct in question resulted in ‘a coercion of the will which vitiates consent’• What does this mean?

• ‘There is a large difference between a gun to the head and being subject to a pushy salesman’

• Void or voidable? Image: https://www.google.de/search?biw=1680&bih=944&tbm=isch&sa=1&ei=xXjpWruFAY6csAfTlKl4&q=money+tied+up&oq=money+tied+up&gs_l=psy-ab.3..0j0i24k1l5.9765.11947.0.12223.13.11.0.2.2.0.104.539.10j1.11.0....0...1c.1.64.psy-ab..0.13.545...0i67k1j0i8i30k1.0.0kVt4WF5UT0#imgrc=6sgYnjGyLxjt_M:

UNDUE INFLUENCE6• Consent is obtained by some form of pressure which is

not duress• Difference between undue influence and duress?

• Strong recommendations or opinions will not necessarily result in undue influence• A person’s sense of free choice must be affected

• Presumption of undue influence?

• Void or voidable?Image:https://www.google.de/search?biw=1680&bih=944&tbm=isch&sa=1&ei=0XjpWs29OpCQkwWI8ISYCA&q=zapiro+fifa&oq=zapiro+fifa&gs_l=psy-ab.3...74932.77738.0.77854.11.10.0.1.1.0.149.481.7j1.8.0....0...1c.1.64.psy-ab..2.7.387...0j0i67k1j0i30k1j0i24k1.0.RdZpwNjW7wM#imgrc=nHUEcBnEe_j7OM:

DURESS VS UNDUE INFLUENCE?

Duress Undue Influence

Involves threats or coercion Involves taking advantage of a position of trust

Narrower concept Wider concept (includes behavior that is wrongful but which is not necessarily duress)

Must be claimed by the person claiming to have been pressured

In certain relationships, undue influence can be presumed

• A contract can come to an end in the following ways:

1. Performance;

2. Breach;

3. Frustration

END OF THE CONTRACT

PERFORMANCE1

• Parties fulfil their duties and/or obligations under the treaty• What about a slight difference in what was agreed under the

contract?

• Even if commercially insignificant?

• Malperformance vs non-performance?

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BREACH2

• Parties fail to fulfil their contractual obligations without having a lawful excuse to do so• Abbie enters into a contract that requires performance on 27 April 2018. It is 24 April

2018 and Abbie has still not performed. Is she in breach of the contract?

• Party is not in breach of a contract until his/her performance is due under the contract

• Anticipatory breach?

• Party who incapacitates him/herself from performance?

FRUSTRATION3• Certain events may occur which ‘frustrate’ the contract after its conclusion

• Such frustration is not the fault of any of the parties to the contract

• This doctrine is applicable where the event either:• Renders contractual obligations impossible; or

• Radically changes the party’s principal purpose for entering into the contract

• Shipping contracts?Image: https://www.google.de/search?biw=1680&bih=944&tbm=isch&sa=1&ei=CUPeWofrNcbHwAKG2bXIAw&q=cargo+shipping&oq=cargo+shipping&gs_l=psy-ab.3..0l10.11852.12826.0.13025.6.6.0.0.0.0.61.276.6.6.0....0...1c.1.64.psy-ab..0.6.273...0i13k1j0i7i30k1.0.OJDvTe4LHrQ#imgrc=DULB0c799X_2EM:

• Traditionally, three remedies are available for a party to make use of when a contract has been breached:

1. Damages;

2. Specific Performance;

3. Restitution

REMEDIES FOR BREACH

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DAMAGES1

• Main remedy for breach of contract under English common law

• Differentiate between damage (singular) and damages (plural)• Damage is loss, injury or harm (to person or to property)

• Damages refers to monetary compensation – has to be paid for one person causing damage to another

• Purpose/Aim of this remedy?

SPECIFIC PERFORMANCE2

• This remedy is usually used when:• The subject of the contract is unique;

• The true amount of damages is unclear

• Therefore, it is a specialised remedy that is used when no other remedy (such as money) will adequately compensate the other party

• Only granted when damages are inadequate to compensate the aggrieved party

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RESTITUTION3

• One party performs all or part of his/her obligations without receiving counter performance

• The non-breaching party is put back into the position they would have been in had the contract never taken place

• Non-breaching party already paid a sum of money

• Consequence?

• Breaching party received some other benefit

• Consequence?

• Karl wants to buy a house in Hamburg. Karl contacts John, a realtor, and arranges to see several houses that are on sale in Hamburg. After picking out the house he likes, Karl asks the owner if the house has a termite problem. The house does have a termite problem but the owner, knowing that Karl will not buy the house if he knows about the termite problem, tells Karl that there is no termite problem. Karl and the owner sign a contract under which Karl will buy the house for $250,000.

• What type of misrepresentation is this?

QUESTIONS?

• Fraudulent misrepresentation. After the contract is signed, Karl finds out about the termite problem. In this case, the contract will be voidable by Karl because the owner made a fraudulent misrepresentation that Karl relied on and, based on that misrepresentation, Karl entered into the contract.

• Karl finds a house that he would like to buy and enters into a contract to buy it for $250,000. Karl never asks about any termite problems and the owner never volunteers that there is a termite problem. Karl buys the house and then finds out that there is an extensive termite problem.

• Is this non-disclosure or a misrepresentation?

QUESTIONS?

• Non disclosure

• In this case, Karl can void the contract. Given the owner’s special position as the home owner, he had an obligation to let Karl know about the termite problem

• What is the difference between undie influence and duress?

QUESTIONS?

• See the table

• Susan reluctantly places her aged mother in a nursing home because she can no longer care for her mother 24/7 and needs to work to pay the bills. One week later, Susan visits her mother for the first time and notices that all of her Mother’s jewellery is missing. When Susan reports this to the nursing home management, she is shown contracts signed by her mother whereby her mother agreed to give up thousands of dollars’ worth of jewellery for special treatment by the staff, i.e. priority at the dining room, use of the nicest chair, and selection of T.V. programs on the communal TV.

QUESTIONS?

• Given that the staff has a special position of power and control, such contracts for the sale of mother’s jewellery will be voidable due to undue influence

• Discuss specific performance as a remedy for breach of contract

QUESTIONS?

• See slides and class discussion

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