KTR 211_Theme 2 (Part 2) PDF

THE LAW OF CONTRACT MR LK THUTSE Date: Week 26 February to 01 March 2024. Pacta de contrahendo ❑ Contract aimed at the conclusion of another contract. ❑ Generally: Prohibited with the exception of an option and preference contract. ❑ Option: An agreement restricting an offeror’s right to revoke an o...

THE LAW OF CONTRACT MR LK THUTSE Date: Week 26 February to 01 March 2024. Pacta de contrahendo ❑ Contract aimed at the conclusion of another contract. ❑ Generally: Prohibited with the exception of an option and preference contract. ❑ Option: An agreement restricting an offeror’s right to revoke an offer. ❑ Preference contract: An agreement where one person binds himself to give preference to another should he/she conclude some other specific type of agreement (right of first refusal or right of pre-emption). Pacta de contrahendo: Options Option: ❑ Agreement restricting an offeror’s right to revoke the offer [e.g. – to keep an offer open for a certain period of time—renders the offer irrevocable for a time period (duration of option).] ❑ Holder of option has power to bring contract into existence by the unilateral act of exercising the option i.e. by accepting the offer. ❑ May be granted gratuitously or for some consideration. ❑ Option can be an exclusive right or transferable to 3rd parties. ❑ Option has 2 parts: Part 1 – main offer –offer to enter into the main agreement (e.g. sale or lease). Part 2 – ancillary offer –agreement to keep main offer open for a certain time. Pacta de contrahendo: Options ❑ An OPTION is an offer coupled with a stipulated period of time during which the offeror is not free to revoke it. ❑ A makes an offer to B and gives a stipulated time within which he must accept to it. ❑ A also is not allowed to make the same offer to C within the same period. ❑ Thus, in an option there will be two contracts/conditions to be observed i.e. that of time and that of not having made the same offer to another third party. ❑ An ordinary revocable offer can simply be terminated by the offeror by revocation, but before it has been accepted. The revocation must be communicated with the offeree. Pacta de contrahendo: Options Transferability of Option: ❑ GR: Transferrable through cession. ❑ Exceptions: Prohibited in the option (Express/Implied)/ Option is personal to the Offeree. ❑ Whether identity of Offeree is of any important to Offeror: ▪ Hersch v Nel 1948 (3) SA 686 (A) at 695: ❖ Credit sale vs Cash sale Pacta de contrahendo: Options Effect of options: ❑ Renders offer irrevocable. ❑ Attempt to revoke = Breach---also has no force or effect as the offer will remain open. Pacta de contrahendo: Options Duration of the option: ❑ GR: 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 (express or implied). ❑ If option is personal to the grantee (Can’t be transferred) – offer will terminate on death of either party. Pacta de contrahendo: Options Formalities: ❑ Mokone v Tassos Properties (CC): ▪ Preference contract need not comply with the formalities required for the main agreement. ▪ Deed of alienation: Alienation of Land Act. ▪ NB: Same principle applies to options. Pacta de contrahendo: Options Remedies for breach of an option: ❑ Is breach a material breach? (e.g. Offeror attempts to revoke the option) ❖Yes= innocent party has choice to cancel or uphold contract. ❖Cancellation = contract is terminated =entitled to restitution for any performance made. ❖Uphold = innocent party entitled to specific performance. ❖Cancellation/uphold = innocent party entitle to claim for damages. ❖Damages- seek to place innocent party in the financial position that he/she would have occupied had the breach not occurred. Pacta de contrahendo: Preference contracts A preference contract: 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 1st refusal or right of pre-emption). The right of pre-emption/ pre-emptive right: Grantor of preemptive right is under no obligation to sell property, the grantee merely acquires the preferential right to buy if/when grantor decides to sell. Pacta de contrahendo: Preference contracts OPTION Grantor already made an offer to grantee. PRE-EMPTIVE RIGHT No firm offer at the time the right is created. Power to conclude lies exclusively with grantee. Grantor retains power to decide whether or not to sell. Grantor obliged to sell if grantee exercises the Grantor cannot be compelled to sell. option. Power in hands of the grantor. Power in hands of the grantee. Terms of the main contract set out in the offer. Terms of the main contract usually not yet determined. Pacta de contrahendo: Preference contracts Obligations of the grantor 1. The grantee has the correlative right against the grantor that he should not sell. 2. Trigger event in pre-emption agreement. 3. Offer must be bona fide. Pacta de contrahendo: Preference contracts Obligations of the grantor 1. Grantee has the correlative legal right against the grantor that he should not sell: ❑ Soteriou v Retco Poyntons (Pty) Ltd. (1) (381/83) ZA SCA 15: ❖ The grantor of such a right cannot be compelled to sell the property concerned. But if he does sell, he is obliged to give the grantee the preference of purchasing, and consequently he is prevented from selling to a third person without giving the first refusal. ❖ So, a right of pre-emption involves a negative contract not to sell the property to a third person without giving the grantee the first refusal; and the grantee has the correlative legal right against the grantor that he should not sell. This is a right which is enforceable by appropriate remedies. Pacta de contrahendo: Preference contracts Obligations of the grantor 2. Trigger event in pre-emption agreement: ❑ Grantor - Negative obligation – arises as soon as the pre-emptive agreement is concluded. ❑ Grantor- positive obligation conditional on happening of a trigger event. Pacta de contrahendo: Preference contracts Obligations of the grantor 3. Offer must be bona fide ❑ Offer made by offeror must be made in good faith. ❑ Cannot avoid pre-emption agreement by making an unreasonable offer. ❑ Examples: ❖ If terms stipulated – offer must abide by those terms. ❖ If willing to sell to 3rd party –offer to holder of preemptive right must be on the same terms. ❖ Generally – use objective criteria e.g. market value. Pacta de contrahendo: Preference contracts Duration of offer: ❑ Offer must be kept open for a reasonable period. ❑ Good faith. ❖Wissekerke en ‘n Ander v Wissekerke 1970 (2) SA 550 (A)—if grantor makes an offer to the grantee- then genuinely changes his/her mind about selling the property—grantor may withdraw the offer. Pacta de contrahendo: Preference contracts Remedies: ❑ Usual civil remedies as discussed previously (Interdict?), but also, The oryx mechanism. ❑ Associated SA Bakeries (Pty) Ltd v Oryx & Verenigde Backereien (Pty) Ltd 1982 (3) SA 893 (A) at 907. ❖“In the event that a seller concludes a contract of sale with a third party in breach of a right of pre-emption, the holder [the holder of the right of preemption] may, through a unilateral declaration of intent, step into the position of the third party. A contract of sale is then deemed to have been between the seller and the holder of the right of pre-emption.” ❖Criticism.