Chapter 9 Parties to Contracts PDF

CHAPTER 9 Parties to contracts Number of parties - Contract involves agreement between at least two parties South African law doesn’t recognize unilateral promises as contracts A person cannot contract with themselves unless in different capacities Courts have acknowledged the possibility of self-co...

CHAPTER 9 Parties to contracts Number of parties - Contract involves agreement between at least two parties South African law doesn’t recognize unilateral promises as contracts A person cannot contract with themselves unless in different capacities Courts have acknowledged the possibility of self-contracting in dual roles Example: Person as agent of a corporation contracts with themselves personally Potential for conflict of interests and abuse exists Courts would disregard sham contracts for tax evasion, focusing on actual circumstances Multiplicity of parties - Contracts often involve multiple parties, not just two. Each contract typically entails multiple obligations, with at least one debtor and one creditor for each obligation. Parties may switch roles between debtor and creditor depending on the specific obligation within the contract. For instance, in a sales contract, the buyer is the debtor for paying the price and the creditor for receiving the sold item. In contracts with multiple parties, there may be co-debtors or co-creditors for each obligation. Determining the share of liability or entitlement for each co-debtor or co-creditor depends on factors like the parties’ intentions, contract nature, and whether the performance is divisible. Divisibility of the performance - Performance can be divisible or indivisible Divisible performance example: seller sells 100 cows to two purchasers Indivisible performance example: seller sells one cow to two purchasers Divisibility depends on nature of performance and parties’ intentions Example: collection of rare paintings sold as a collective unit, intended by parties to be indivisible Joint and several (in solidum) liability or entitlement - Parties to a contract must agree to joint and several liability. Joint and several liability applies to partners and co-signatories of negotiable instruments. It may also be imposed by statute. Each co-debtor is liable for the full debt amount. Payment by one co-debtor discharges the debt completely. Part-payment discharges the debt proportionately. A co-debtor who pays more than their share has a right of recourse against others. If a co-debtor takes cession from the creditor, they can only recover the proportionate share. If a creditor releases one co-debtor, the remaining co-debtors’ liability is reduced proportionately. - Joint and several liability benefits the creditor by allowing them to claim from any financially strong debtor. Co-creditors can jointly claim performance from a debtor. Performance to any co-creditor discharges the debt. If a creditor receives more than their share, other co-creditors have a right of recourse against them. Collective joint liability and entitlement - Co-debtors are collectively liable for performance. Creditor cannot demand performance from any individual debtor. Co-creditors are collectively entitled to performance. No individual creditor can claim entire performance from debtor. Collective liability arises when performance is indivisible. Intention of parties determines collective liability. o Example: A and B co-owners sell farm to C. o C can claim transfer of farm from A and B together, not individually. o Example: A and B jointly buy farm from C. o They are collective joint creditors. o They must act jointly in claiming transfer from C. Several liability - Drafting single documents for deals involving multiple parties is common, like in construction projects with subcontractors. These documents may contain multiple contracts. It’s important to interpret them as containing independent contracts. Avoid confusing them with situations where parties share rights and duties. Contracts and third parties - - Contracts primarily affect immediate parties involved Third parties may be involved or affected during contracting process and afterwards Examples of third party involvement: o Acting as agents for principal parties during contract formation o Assisting in discharging obligations created by the contract o Becoming parties to the contract through substitution or acceptance of benefits Despite the principle of privity of contract, third party involvement is possible Privity of contract - The cornerstone of contract law is the principle of privity of contract. Contracts create rights and duties only for the parties involved. No duties can be imposed on third parties without their consent. Exceptions exist for creating rights for third parties, as long as both parties agree to confer a benefit. Deliberate interference by a third party in a contractual relationship can constitute a delict. The doctrine of notice applies in cases where a third party acquires property in bad faith, making them liable to discharge contractual obligations undertaken by their predecessor-in-title. - Examples of cases: o A deliberately inducing B to break her contract of employment with C. o A buying a farm from B, knowing that B has undertaken to register a servitude over the land in favor of C. Representation: contracting through an agent - Contracts often involve representatives or agents, especially when a company is involved. Agency refers to the authorization of one person (agent) to negotiate a contract on behalf of another (principal). Agents act on behalf of principals in negotiations, but the contract is between the principal and the third party. Representation occurs when one person (agent) conducts a legal act on behalf of another (principal) with the necessary authority. Representation can be granted by law or by a contract between the principal and the agent. A power of attorney grants written authority for an agent to act on behalf of the principal. The contract between the principal and the agent is often called the contract of mandate. Mandate involves giving someone a task to perform, which may not always involve true agency. True agency involves both mandate and the power for the agent to represent the principal in legal matters. Legal consequences of agency involve analyzing the relationships between the parties involved. Relationship between principal and agent - Governed by common-law principles of contract of mandate Supplement by agreed-upon terms by parties Agent occupies fiduciary position Obliged to act in interest of principal, not own interest Some statutes impose specific duties on agents or ‘intermediaries’ Relationship between principal and third party - - Relationship between principal (P) and third party (3p) determined by A’s state of mind during negotiation. P vicariously responsible for A’s acts, including misrepresentations. Contract between P and 3p if A acts within authority; P not bound if A exceeds authority, but may be liable for benefits. P bound despite lack of authority if: o Contract ratified by P. o P estopped from denying A’s authority. o A had ostensible authority, created by P’s words or conduct. Disagreement on juristic nature of ostensible authority. Doctrine of undisclosed principal: A personally liable, but P can demand performance if not prejudicial to 3p. - Undisclosed principal vs. unidentified principal. Common law doesn’t allow representation of nonexistent principal. Statutory exception for pre-incorporation contracts; contract binding upon incorporation and adoption/ratification by the corporation. Makate v Vodacom (Pty) Ltd : In this instance, P can be held bound despite A’s lack of actual authority. This is where A had ostensible or apparent authority to represent P, which will be. The case when P, by words or conduct, created an appearance that A had the Power to act on P’s behalf. Con Court held “misrepresentation that creates the appearance of authority…and In the case of ostensible authority this element alone will suffice to bind the Principle – nothing more is required”. Relationship between agent and third party - A, when acting within authority, incurs no liability to 3p. Lack of authority or exceeding authority may lead A to compensate 3p for any loss from the contract failure. A warranting authority is liable to 3p for breach of warranty of authority, with damages based on 3p’s positive interest. Fraudulent or negligent misrepresentation of authority leads to delictual liability, with damages based on 3p’s negative interest. Previously, courts held agents exceeding authority liable based on implied warranty of authority. The justification for this legal fiction is questionable. The contract for the benefit of a third party (stipulatio a lteri) - A contract often includes provisions benefiting individuals not party to it (e.g., pension agreements, life insurance policies). Historical debate: Roman law didn’t enforce third-party benefits; Roman-Dutch law accepted but debated on acquisition of rights. South African courts enforce contracts for third parties with practical rules aligned with contract law principles. **Stipulatio alteri**: Two parties can contract for third party benefit; third party’s right acquired upon acceptance notified to the promisor. Acceptance by third party activates independent right to enforce performance by promisor. Unclear points: When does the third party acquire the right? Does it involve one or two contracts? Two views: Stipulatio alteri consists of two bilateral relationships or one immediate contract. Proper construction debated by jurists; continues in law today, relevant in various legal domains. Practical consequences: Insolvency of third party before acceptance affects rights to the benefit. Traditional contract principles emphasize consensus; stipulatio alteri construed as offering to third party, creating further legal bond upon acceptance. Transfer of rights and duties to a third party - - - - A party can transfer rights and duties from a contract to a third party, typically requiring the consent of the other party. Contractual rights are transferred via cession, needing consent from the cedent and cessionary. Contractual duties are transferred through delegation, necessitating consent from all parties involved. Delegation often involves novation, replacing the original debt with a new one, but recent views suggest otherwise. Withdrawal and substitution by a third party can occur through novation or assignment, a combination of cession and delegation. Assignment involves a tripartite agreement among all parties concerned. Cession: o Contractual rights are transferred by means of a transfer agreement known as cession. o Cession entails a substitution of creditors: the right that the creditor has against a debtor is transferred to a third party who becomes the creditor in his or her place. o Cession requires the consent of the transferor of the right (the cedent) and the transferee (the cessionary). Delegation: o Contractual duties may effectively be transferred to a third party through a process called delegation. o Delegation entails a substitution of debtors and requires the consent of all the parties concerned: the creditor, the original debtor, and the third party as the new debtor. Novation: o The traditional view is that such a delegation will always involve a novation, that is, the extinction of the original debt and the creation of a new one in its place. o Where a party to a contract wishes to withdraw and be substituted by a third party, this can be achieved either by a complete novation of the contract. Assignment: o Withdrawal and substitution by a third party can occur either by a complete novation of the contract or by transferring all the party’s rights and duties under the contract to the third party – in other words, by a combination of cession and delegation. o This process is commonly referred to as assignment, and is effected by means of a tripartite agreement between all the parties concerned. Performance by a third party - Third parties can intervene in contractual relationships by fulfilling a performance owed by one party. This intervention doesn’t make the third party a party to the contract. Performance made to a third party - Parties to a contract can discharge obligations by payment to a third party, te rmed “adiectus solutionis causa”. Third party is added for payment only, not becoming a creditor or agent.