Business Law: Formation of a Valid Contract

Study Notes

A contract is an agreement between persons in which they agree to do something, not do something, or deliver something.
Consensus is the basis of all contracts, and it is the result of negotiation between the parties.
The parties must have a "meeting of the minds" to reach consensus.

Void contracts: never came into existence, e.g. unlawful contract, agreement reached by mistake, impossibility of performance.
Voidable contracts: have a flaw, and the aggrieved party can choose to render the contract valid or void, e.g. contracts without true agreement, misrepresentation, duress, undue influence, performance later became impossible.

Consensus is the result of negotiation between the parties.
One party's will or intention needs to correspond with the will or intention of the other party.
Consensus is reduced to whether there was an offer and acceptance.
Rules of offer and acceptance:
- An offer may be made to a defined person, a group, or the whole world.
- The offer must be communicated to the offeree before it can be accepted.
- The offer must have been seriously intended to create legal relations between the parties.
- The acceptance of the offer must be absolute, unambiguous, and correspond with the terms of the offer.
- The offer and acceptance must result in certain and definite terms.
- Only the person to whom the offer is made may accept it.
- The acceptance must be communicated to the offeror.

A mistake is a misapprehension of the existence or non-existence of a fact or state of facts.
If all elements of a mistake are present, the contract is void.
4 types of mistakes:
- Mistake of law
- Mistake in expression
- Mistake in motive
- Mistake of fact

A mistake of fact is the only type of mistake that will render a contract void in SA law.
The mistake must be reasonable and material to render the contract void.
4 types of mistakes of fact:
- Error in negotio (nature of contract)
- Error in corpore (ID of contract subject matter)
- Error in substantia (attributes of subject matter)
- Error in persona (ID of parties)

A false statement of fact made by one person to another before or at the time of the contract, with the intent of inducing the contract, which actually results in a party being induced to contract.
4 types of statements made between parties in negotiating a contract:
- Puff (an exaggeration)
- Warranty (an undertaking that the statement will be complied with)
- Opinion (a statement made by someone who believes it to be true)
- Representation (a statement made to induce a party into entering the contract)### Fraudulent Misrepresentation
A representation of a false fact, made fraudulently, believed by the representee, and was a factor in inducing them to contract.
Can be an express statement or conduct, but not a puff or opinion.
Active concealment is failing to correct a false opinion or half-truth.
Designated concealment is purposefully concealing information where there's a duty to disclose.
Disclosure is obligatory when there's a duty to disclose.
A statement was made without honest belief in its truth, and it would have led a reasonable person into contracting.
The misrepresentation must actually induce the party into contracting.

A representation of a false fact made negligently, believed by the representee, and one of the main factors they entered into the contract.
Can be used as a defence for cancellation or specific performance, but probably not for a delict.

A representation of a false fact made innocently, believed by the representee, and one of the main factors they entered into the contract.
Can be used as a defence for cancellation.

The plaintiff was induced by fear, violence, or threat to enter into the contract.
The force was so great that no reasonable person would have resisted it.
The contract is voidable with three elements:
- Reasonable and substantial fear of imminent harm to the plaintiff's life, body, family, or dignity.
- The threat was illegal or had an illegal result.
- The pressure caused the plaintiff to agree, and there would be no contract without the duress.

Weakening of a person's resistance to make their will pliable.
The person would otherwise have never entered into the contract if they had normal freedom of will.
The contract is voidable, but the aggrieved party must act soon after the influence is removed.