30 Questions
What is a pacta de contrahendo?
A contract aimed at the conclusion of another contract.
Define an option contract.
An agreement restricting an offeror's right to revoke an offer.
What is a preference contract?
An agreement where one person binds themselves to give preference to another in certain specific agreements.
Explain the components of an option.
An option has two parts: the main offer (offer to enter into the main agreement) and the ancillary offer (agreement to keep the main offer open for a certain time).
What does an option offer include?
An offer coupled with a stipulated period during which the offeror cannot revoke it.
How does an option contract work?
The offeror makes an offer to the offeree and specifies a time within which the offeree must accept the offer.
What are the possible remedies for breach of an option in a preference contract?
Cancellation or uphold contract
What is the difference between a preference contract and a right of pre-emption?
A preference contract involves giving preference to another party if a specific agreement is reached, while a right of pre-emption grants the holder the first option to buy if the grantor decides to sell.
In a preference contract, what happens if the offeror attempts to revoke the option? Is this considered a material breach?
Yes, it is considered a material breach.
What formalities are required for a preference contract to be valid?
Preference contract does not require compliance with formalities of the main agreement.
What principle applies to options in terms of formalities and compliance?
Options need not comply with formalities required for the main agreement.
What does the innocent party seek through claiming damages in the event of breach of an option?
To be placed in the financial position as if the breach had not occurred.
What happens if an ordinary revocable offer is terminated by the offeror before it is accepted?
It must be communicated with the offeree.
In the context of options, when does an attempt to revoke the offer result in a breach?
When the offer has been rendered irrevocable.
What is the effect on an offer if the option specifies a time period for its exercise and the option is not exercised within that time period?
Automatic termination of the option.
When does the death of either party terminate an option contract?
Only if the contract stipulates so, either expressly or impliedly.
How can an option be transferred?
Through cession, unless prohibited or if the option is personal to the Offeree.
What happens if an offeror tries to revoke an offer that has an option attached to it?
The revocation has no force or effect, and the offer remains open.
What is the main power retained by the grantor in a pre-emption agreement?
The power to decide whether or not to sell.
In a pre-emption agreement, what is the obligation of the grantor if the grantee exercises the option to purchase?
The grantor is obliged to give the grantee the preference of purchasing.
What does the grantee have the legal right to expect from the grantor in a pre-emption agreement?
The grantee has the correlative legal right that the grantor should not sell to a third person without offering them the first refusal.
What type of contract is a right of pre-emption considered to be?
It is considered a negative contract.
What is the significance of the grantor's obligation in a pre-emption agreement?
The grantor is prevented from selling to a third person without giving the grantee the first refusal.
What is the trigger event in a pre-emption agreement?
The grantee exercising the option to purchase.
What is the trigger event in a pre-emption agreement for the grantor?
Negative obligation
What type of offer must be made by the offeror in a preference contract?
Bona fide offer
What must an offer in a preference contract abide by if terms are stipulated?
The terms stipulated
How long must an offer be kept open in a preference contract?
For a reasonable period
In the case of Wissekerke en 'n Ander v Wissekerke 1970, when can the grantor withdraw an offer made to the grantee?
If the grantor genuinely changes his/her mind about selling the property
What is the Oryx mechanism associated with in preference contracts?
Remedies
Study Notes
Pacta de Contrahendo (Contracts Aimed at the Conclusion of Another Contract)
- Generally prohibited, with exceptions of option and preference contracts
Options
- An agreement restricting an offeror's right to revoke an offer
- Holder of option has power to bring contract into existence by accepting the offer
- May be granted gratuitously or for some consideration
- Can be an exclusive right or transferable to 3rd parties
- Has two parts: main offer and ancillary offer
- Offers coupled with a stipulated period of time during which the offeror is not free to revoke it
Formalities of Options
- Preference contract need not comply with the formalities required for the main agreement
- Deed of alienation: Alienation of Land Act
Remedies for Breach of an Option
- Breach is material if offeror attempts to revoke the option
- Innocent party has choice to cancel or uphold contract
- Cancellation terminates the contract and entitles innocent party to restitution for any performance made
- Uphold entitles innocent party to specific performance
- Cancellation/uphold entitles innocent party to claim for damages
Preference Contracts
- An agreement where one person binds himself to give preference to another should he/she decide to conclude some other specified type of agreement
- Right of pre-emption/pre-emptive right: grantor is under no obligation to sell property, the grantee merely acquires the preferential right to buy if/when grantor decides to sell
Transferability of Option
- Can be transferred through cession
- Exceptions: prohibited in the option (Express/Implied)/ Option is personal to the Offeree
- Whether identity of Offeree is of any importance to Offeror
Effect of Options
- Renders offer irrevocable
- Attempt to revoke is a breach with no force or effect
- Offer remains open
Duration of the Option
- Option should specify the time within which the option must be exercised
- Failure to exercise option in the given time - automatic termination of option
- If option does not stipulate a time period - offer must be kept open for a reasonable time
- Death of either party will not terminate option unless contract stipulates otherwise
Obligations of the Grantor in Preference Contracts
- Grantee has the correlative legal right against the grantor that he should not sell
- Trigger event in pre-emption agreement
- Offer must be bona fide
- Grantor cannot avoid pre-emption agreement by making an unreasonable offer
Remedies for Preference Contracts
- Usual civil remedies (Interdict?), but also, The Oryx mechanism
This quiz covers the concept of Pacta de Contrahendo in contract law, specifically focusing on contracts aimed at the conclusion of another contract. It explains the exceptions of option and preference contracts, along with their respective definitions and implications.
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