CONTRACT LAW

Mr Mhlongo
Week 4 (PP 1 OF 1)

UKZN INSPIRING
This Week
• Contractual Capacity

• Introduction
• Legal capacity
• Contractual capacity

• Natural persons without contractual capacity

• Contractual capacity of:

• Minors
• Married persons
• Drunken persons
• Insolvent persons
• Natural persons with full contractual capacity
• Juristic persons
• The State
CAPACITY
• Introduction

• There are 6 requirements for a valid contract:

1. Agreement (consensus)
2. Contractual capacity
3. Legality
4. Formalities
5. Certainty
6. Possibility of performance
 LEGAL CAPACITY
• Legal capacity
• The South African Law recognizes two types of LEGAL PERSONS: -
• 1. Natural persons
• Human beings
• 2. Juristic persons
• Artificial persons, for example companies, universities, and the state

• A legal person (natural or juristic) is also referred to as a LEGAL SUBJECT

• All persons (natural or juristic) have LEGAL CAPACITY in the sense that they
can be bearers of RIGHTS and DUTIES
• Legal Capacity arises from being a legal personality (natural or juristic) and is not
affected by age or status.
 CONTRACTUAL CAPACITY
• Juristic Act
• Persons entering into a contract must have the legal ability to enter into a
contract, therefore, to conclude a juristic act.
• A juristic act, in contract, means conduct or an act which creates, alters, or
destroys legal rights and duties.
• Having legal capacity does not mean having contractual capacity.
• The law limits the ability of natural and juristic persons to perform juristic acts in
certain circumstances.
• We therefore need to assess a person’s contractual capacity to determine if
they are able to perform such juristic acts which create, amend, alter or
destroy legally binding rights and obligations through a contract.
 CONTRACTUAL CAPACITY
• What is contractual capacity?
• Contractual capacity is viewed in relation to the concepts of personality and
legal status:
• 1. PERSONALITY
• Determines that you are a legal entity or persona (natural or juristic)
• 2. LEGAL STATUS
• As a result of this personality, you acquire legal status ie. Your legal status defines that legal
personality further
• Status describes your legal ”condition” for eg. Married woman.
• Other examples are; A public company, a minor person, A South African resident. These are all
the factors that will determine your status such as domicile, age.
• 3. CAPACITY
• Describes the legal competence to have rights and duties and is determined by the existence of
legal PERSONALITY and STATUS
 CONTRACTUAL CAPACITY
• Definition:
• Contractual capacity is the competence to create rights and duties by
concluding a contract with another person or persons. It is basically the ability
to enter into a contract.

• Capacity is a competency regulated by law.

• For examples, a person only has capacity to make a will at the age of 16 but a
person may witness a will from the age of 14. A child has the capacity to be
liable in terms of criminal law only from the age of 10 but has no contractual
capacity until 18.
 CONTRACTUAL CAPACITY
• Generally, natural persons have full capacity to enter into contracts, i.e they are
capable of entering into valid contracts, unaided.
•

• Have legal rights and duties

• May perform juristic acts (with legal consequences)
• May be a party to litigation (sue and be sued)

• Some people have zero contractual capacity such as infants and mentally ill persons.

• Some people have limited contractual capacity:

• Minors
• Married people
• People who are intoxicated at the time they contract
• Insolvent people
 NO CONTRACTUAL CAPACITY
• Natural persons without contractual capacity.
• Persons of unsound mind/mentally ill
• Minors below age 7

• No agreement they enter into will be valid.

• Either the parent/guardian or the curator must enter into the contract
on their behalf.
 NO CONTRACTUAL CAPACITY
• Mentally ill persons

• Since the performance of a juristic act is generally an expression of the person’s will,
the law confers full capacity to perform a juristic act only upon those whom it
regards as sane, sober and old enough to appreciate the nature and the
consequences of their actions.
• Persons who are mentally ill to the extent that they cannot appreciate the nature and
consequences of their acts have no contractual capacity.

• A person who alleges that another person lacked contractual capacity at the time of
conclusion of a contract must prove that, at the relevant time, the latter was incapable
of appreciating the nature and effect of his/her actions.

• The burden of proof rests with the person who alleges the lack of capacity.
 CONTRACTUAL CAPACITY: MINORS
• Minors: General
• Who is a minor?
• According to the Children’s Act 38 of 2005, a minor is any person below 18
years of age.
• A major or adult is therefore anyone who is 18 years of age or older. We
therefore say that a person has ‘attained majority’ when they turn 18.
• In terms of contractual capacity, there are 2 categories of minors:
• 0-7 years of age: No contractual capacity
• 7-18 years of age: Limited contractual capacity
 CONTRACTUAL CAPACITY: MINORS
• Minors (0-7 years of age)

• General rule: Minors under the age of 7 have ZERO or no contractual

capacity at all
• This is due to them not having the intellect or judgment to enter into a
contract.

• Exception: They may only be a part of contract where their parent or

guardian enters into it on their behalf
 CONTRACTUAL CAPACITY: MINORS
• Minors (7-18 years of age)

• Minors aged 7-18 have LIMITED contractual capacity

• If they want to enter into a contract, they need the assistance or consent of their guardians.
• For a guardian to give assistance, this means that they must have given their informed
consent to the minor entering into the contract.
• This consent may be given prior to, at the time of concluding the contract, or after the
contract is concluded (ratification).
• NB: If the guardian’s consent is not obtained by the time the contract is concluded, the
contract is voidable.
• Consent may be given expressly or impliedly.
• Informed consent means that the guardian was aware of the material (important) aspects of
the contract. They did not need to have known every single aspect of the contract.
• Such a contract is known as an ‘assisted contract’
 CONTRACTUAL CAPACITY: MINORS
• Minors (7-18 years of age)

• General rule: minors must be assisted by their legal guardians

• Exception: minors can act without assistance if they obtain rights and
no duties (e.g. donation)
 CONTRACTUAL CAPACITY: MINORS
• Minors: Who is a guardian?

• Guardians are those persons who have legal authority and a duty of
care over the person and property of the minor.

• The Children’s Act, 2005 regulates how a minor’s guardian is

determined.
 CONTRACTUAL CAPACITY: MINORS
• Minors: Who is a guardian?

• The biological mother of the minor

• Has full parental responsibility and rights in respect of the minor and is the
default guardian of the minor, irrespective of whether they are married or not
• If the biological mother is an unmarried minor, then the guardian of the
biological mother will also be the guardian of her child.
 CONTRACTUAL CAPACITY: MINORS
• Minors: Who is a guardian?

• The biological father of the minor

• Will be the minor’s guardian as well, if they are married to the minor’s mother.
• If they have never been married to the minor’s mother, the court will consider
giving guardianship rights to the father if he was living with the mother or if he
contributed, or attempted to contribute, to the maintenance of the child.
• A minor may thereby have 1 or 2 guardians, depending on the circumstances.
• NOTE: Most contracts only require the signature of 1 guardian. The exception
to this is where the minor’s immovable property is being transferred or
mortgaged – in this instance, both guardians must consent
 CONTRACTUAL CAPACITY: MINORS
• Minors: Types of consent of parent/guardian

• Consent can be express or implied

• Express = where the guardian actually states their consent, either verbally or
in writing

• Implied = When the general circumstances and specifically the guardian’s

behaviour indicate that the guardian consents to the minor entering into the
contract.
 CONTRACTUAL CAPACITY: MINORS
• Minors: Ratification of contracts

• In order for a minor aged 7-18 to conclude a valid contract, they must be assisted by their
guardian. Failure to do so will result in an unassisted contract which is voidable.
• An unassisted contract can be remedied however and converted into an assisted contract
through ‘ratification’.
• Ratification refers to the necessary consent being given to the contract after the minor
has entered into it.
• Ratification can be done in 2 ways:
• The minor can ratify the contract once they become a major. This must be done within a
reasonable time of turning 18 (What is reasonable is dependent on the legal context at
hand); or
• The guardian can provide their consent before the minor becomes a major.
• Effect of ratification = the contract is now an assisted contract and is legally binding
 CONTRACTUAL CAPACITY: MINORS
• Stuttaford and Co v Oberholzer 1921 CPD 855

• Oberholzer, a minor purchases motorcycle without assistance.

• Upon majority he continued using motorcycle without paying. Stuttaford and Co

sues minor, in which the minor contends that he was unassisted by his parent or
guardian at the time of the parties concluded the contract. The contract was
unassisted.

• The Court held that the minor is bound by the contract because his guardian tacitly
ratified the contract therefore satisfying the consent element for a valid contract.

• NB: The legal principle is that a minor who enters an unassisted contract can be
become bound if he or guardian ratifies the contract explicitly or tacitly.
 CONTRACTUAL CAPACITY: MINORS
• Van Dyk v South African Railways & Harbours 1956 (4) SA 410 (W)

• Van Dyk, a minor, signed a form of agreement between himself and the S.A.
Railways and Harbours in the person of the Minister of Transport under which he
undertook to serve as a railway policeman for an indefinite period.

• His guardian was aware that Van Dyk had signed up and did nothing to prevent
him from reporting for duty.

• Upon majority, Van Dyk made an application to court to declare contract void. He
asserted that guardian was unaware of specific details of the contract.

• The court held that even though guardian was unaware of specific terms they still
consented to the contract therefore contract is still binding.
 CONTRACTUAL CAPACITY: MINORS

• In some cases, further permission is required (e.g. alienation of

minor’s immovable property requires permission from the Master or
High Court if worth more than R250 000).

• The court (upper guardian of all minors) can consent if guardian

refuses, or set aside consent.

• Minors are generally bound by assisted contracts but may have the
contract set aside if she can show it was prejudicial to him/her at the
time.
 CONTRACTUAL CAPACITY: MINORS
• Who is liability in terms of an assisted contract?

• Note: rights and duties of assisted contracts vest in the minor, and not the guardian.
• See Marshall v National Wool Industries Ltd 1924 OPD 238.

• The contract is legally binding between the minor and the other contracting party. In
other words, a valid contract has been formed and the minor is now liable to perform in
terms of it.

• In the event of a dispute, for example, the minor not performing as per the contract the
guardian cannot be held liable and sued for performance under any circumstances. The
guardian does not incur any personal liability.

• All rights and duties created by the contract apply to the minor and the other
contracting party only and not the guardian.
 CONTRACTUAL CAPACITY: MINORS
• Marshall v National Wool Industries Ltd 1924 OPD 238

• The minor, Marshall, purchased shares from the National Wool Industries
with the assistance from his guardian. Marshall then failed to pay the
balance owing to National Wool Industries. He was in breach of contract.

• National Wool Industries sued the guardian for the breach of contract.

• The court held that when a guardian assist a minor into entering a contract
the guardian does not incur personal liability in terms of the contract. The
minor was personally liable to perform on contract not the guardian.
 CONTRACTUAL CAPACITY: MINORS
• Legal status of unassisted contracts:

• Contracts concluded without the assistance of a guardian are NOT void, but voidable.
The innocent party to the contract may choose to either validate the contract (in this
instance, via ratification) or render it void.

• Unassisted contracts are referred to as a ‘limping transactions’. The minor can

subsequently ratify the contract when he/she turns 18 or by the guardian before they
turn 18. (Stuttaford & Co v Oberholzer 1921 CPD 855).

• These contracts can be enforced against the other party, as long as the minor agrees to
perform.

• However, the other party may have a delictual claim against the minor if he/she
fraudulently misled the other party into believing that he/she had capacity to contract.
 CONTRACTUAL CAPACITY: MINORS
• Legal status of unassisted contracts:

• An unassisted contract can either be validated or rendered void. This

means that it can either continue or be set aside.

• Effects of a contract that continues

• Occurs through ratification
• Contract becomes an assisted contract and is valid
• Minor acquires the rights and duties specified in the contract and is
personally liable to the other contracting party
• Both parties have to perform in terms of the contract
 CONTRACTUAL CAPACITY: MINORS
• Legal status of unassisted contracts:

• Effects of a contract that is set aside

• i.e. repudiated
• Contract is void

• The minor can recover everything that they have performed thus far under
the contract, from the other contracting party. They can do this by asking
the major to give back whatever they have received in terms of the contract.

• The legal remedies for such recovery are as follows:

• Unjustified enrichment, in the case of money
• Rei vindicatio, in the case of goods delivered
 CONTRACTUAL CAPACITY: MINORS
• Legal status of unassisted contracts:

• Effects of a contract that is set aside

• Unjustified enrichment
• Can be used where someone has been enriched (received something of value)
unfairly or at the expense of someone else and there is no legal justification for
it.
• Through the remedy, the enriched person must return the money or the value of
the enrichment to the impoverished person who gave them the money or
valuable item.
• In this context, the minor is the impoverished person and they can use
unjustified enrichment as a grounds upon which to recover any money or value
that was given to the other contracting party, from them.
 CONTRACTUAL CAPACITY: MINORS
• Legal status of unassisted contracts:

• Effects of a contract that is set aside

• Rei Vindicatio
• i.e. vindicatory action
• Remedy upon which an owner can legally recover an object that belongs to
them, wherever they may find it.
• It is based on the real right of ownership.
 CONTRACTUAL CAPACITY: MINORS
• Legal position of the other contracting party in an unassisted contract ito
the common law
• NB: The other contracting party cannot use the fact that the minor was unassisted
as a defence to avoid liability under the contract.
• If the contract continues, both parties will perform as per normal
• If the contract is set aside/repudiated:
• The contract is now non-existent hence the other contracting party cannot claim performance
from the minor.
• The other contracting party will not have a remedy against the minor in terms of the law of
contract, but they do have the following remedies in respect of other areas of law:
• Unjustified enrichment and rei vindicatio
• Where the minor pretends to be a major
• Tacit emancipation
 CONTRACTUAL CAPACITY: MINORS
• restitutio in integrum

A Latin term meaning "restitution to the original position".

Commonly used to refer to the remedy of rescission of a contract

where the aim is to return the all/both parties to the position they
would have been in if the contract had never existed.
 CONTRACTUAL CAPACITY: MINORS
• restitutio in integrum
• This can be a remedy used by the minor where the guardian has entered into a contract on the minor’s
behalf without the minor’s knowledge or consent, and the contract turns out to be burdensome or
prejudicial to the minor.
• See Wood v Davies 1934 CPD 250
• Since guardians must always act in the best interests of their minors, this remedy is available so as to
correct a situation which does not meet this standard.
• Should a minor want to use this remedy, they will need to make application to the court. This can be
done in 3 ways:
• independently once the minor is a major;
• with the assistance of their guardian (where they are still a minor)
• with the assistance of a court-appointed representative (where they are still a minor)
• NB: Will be denied if minor fraudulently pretended to be a major at the time of conclusion of the
contract.
• NB: The minor will also be required to perform in terms of the remedy. They too will have to return
whatever value or goods they received from the other contracting party. This is based on the principle
of restitutio in integrum.
 CONTRACTUAL CAPACITY: MINORS
• Impact of the Consumer Protection Act, 2008 (CPA)

• Section 39(1) of the CPA provides that a contract for the supply of goods or services is
voidable if:
• the consumer was an unemancipated minor
• The agreement was made without the consent of an adult responsible for the minor
• The agreement was not ratified by the adults responsible for the minor or the minor after
becoming emancipated or an adult

• This section does not apply, however, if the consumer (minor) convinced the supplied
that they had contractual capacity or hid the fact that they lack contractual capacity

• The CPA does not apply to all contracts. It only applies where someone sells or
market goods ‘in the ordinary course of business’.
 CONTRACTUAL CAPACITY: MINORS
• Legal position of married minors

• When a minor gets married (to another minor or a major), they

immediately attain majority. This majority stays with them even if the
marriage is dissolved either through death of their spouse or through
divorce.

• The effect of attaining majority through marriage is that the minor has
the same contractual capacity as a major.

• Our law support this notion on the rationale that if you are independent
enough to decide to marry someone, they you are also independent
enough to make your own decisions and enter into your own contracts.
 CONTRACTUAL CAPACITY: MINORS
• Legal position of emancipated minors

• Emancipation of a minor = to be freed from parental authority

• Means that the person no longer need the protection of their minority status

• Can happen via the courts or tacitly (i.e. when something is understood
or implied without anything being said)

• Effect: Emancipated minor has the same contractual capacity as a major

• Emancipation by court
• When a court rules that a minor may be regarded as a major
CONTRACTUAL CAPACITY: MARRIED
In community of
property

Matrimonial
Property Systems
With accrual

Out of community of
property

Without accrual
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – in community of property

• When a couple marry in community of property (in CoP), the separate assets and liabilities
of both spouses are joined together in joint estate.
• This means that the spouses share whatever they bring into the marriage, be it existing assets; what
they earn in the future and any liabilities they incur.
• Marriage in CoP is the default marital regime in South Africa. If a couple does not sign an
antenuptial agreement prior to getting married, their marriage will thereby be in CoP.
• Advantage:
• Both spouses have an equal share in their assets
• Disadvantages:
• Both spouses share in each other’s liabilities. The spouses are jointly and severally liable for these debts
• If the joint estate is sequestrated and declared insolvent, both spouses will be declared insolvent.

• NB: This type of marriage will have implications when they enter into contracts.
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – in community of property

• Contractual capacity:
• General rule: both spouses have full and equal contractual capacity
individually to enter into contracts concerning the joint estate. spouses can
generally contract on behalf of the ‘joint estate’ without consent.

• Exception: contracts which the law deems to be too important for one
spouse to enter into alone.
• Accordingly, the spouse entering into the contract must also get the consent
of the other spouse in order for the contract to be valid.
• We therefore say that in these instances, the contracting spouse has limited
contractual capacity.
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – in community of property

• Matrimonial Property Act 88 of 1984 – Types of consent

• According to the above Act, there are 3 different types of consent that may be required:

1. Written consent signed by the one spouse and two witnesses

• Most stringent consent requirement
• Used for the most important contracts, including:
• The sale or mortgage of immovable property
• A surety agreement
• A credit agreement
• In these instances, the contracting spouse signs the contract; the other spouse signs consent to the
contract, and
• Two witnesses also sign the contract so as to attest that they observed the person who’s name is
on the contract did in fact sign the contract
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – in community of property

• Matrimonial Property Act 88 of 1984 – Types of consent

• According to the above Act, there are 3 different types of consent that may be required: (cont)

2. Written consent of the other spouse

• Written consent must be given by the other spouse for the transferring of valuable assets (e.g. shares;
insurance policies; coins; withdrawal of the other spouses’ money held by the other spouse in a bank)
• The other spouse is required to sign the contract so as to indicate consent
• Both spouses’ signatures are needed for these contracts.

3. Express or implied consensual capacity

• Less important contracts (e.g. donations; sale of furniture)
• Consent need not be in writing
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – out of community of property

• When a couple marry out of community of property (out of CoP), they

do not form a joint estate. Rather, the spouses continue to own their
property separately.
• This means that each spouse is entitled do as they wish with their own
property.
• This happens as they have full contractual capacity over their property, such
that they do not require the other spouse’s consent.
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – out of community of property

• How do you conclude a marriage out of CoP?

• Both parties to the marriage must sign an antenuptial contract in front of a
notary public before the marriage takes place.
• When this happens, 2 contracts are concluded namely the antenuptial
contract and the marriage contract.
• The antenuptial contract must be registered at the Deeds Office within 3
months of the marriage being concluded.
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – out of community of property

• Marriage out of community of property without accrual.

• In such marriages, the assets and liabilities of the spouses are kept separate, both prior to
and after the marriage.
• The spouses therefore have separate estates and do not get involved in whatever assets
are accrued or debts are incurred
• At the time of divorce, the spouses leave with whatever they made separately during the
marriage
• Advantage = spouses do not share liabilities
• Disadvantage = if one of the partners faces a delay or impediment in increasing the value
of their estate (.e.g they do not earn for a period of time), that partner will not have a
claim on the gains made by the other party at the time of divorce – this can be quite unfair
 CONTRACTUAL CAPACITY: MARRIED
• Legal position of married persons – out of community of property

• Marriage out of community of property with accrual.

• Accrual is the calculation of what assets and liabilities have accumulated over a
period of time.
• The property that the partners bring into the marriage is kept separate and
whatever assets and liabilities are accrued during the subsistence of the
marriage are also kept separate.
• However, if the marriage is dissolved through death or divorce, the assets gained
during the marriage will then be shared according to an agreed upon percentage.
• Advantage - the earnings made during the marriage are shared by the spouses
but if one of them becomes insolvent, the other does not face the same fate
automatically
 CONTRACTUAL CAPACITY: DRUNK
• Contractual capacity of a drunken person

• Intoxication may result in a temporary loss of contractual capacity but only if a person
was under the influence of alcohol or drugs to such a degree that he/she either did
not know he/she was entering into a transaction at all, or had no idea of its provisions.
• A drunk person will not have contractual capacity if:
• They were so drunk/severely drunk at the time of concluding the contract
• That they did not realise that they were entering into a contract or did not understand the
terms of the contract
• Any contract entered into by such a drunken person will be deemed void.
• This means that the drunken person will not be forced to comply with the contract on the
grounds that they lack contractual capacity.
• NB: If the drunken person received any sort of benefit from the other contracting
party, they would need to return it.
 CONTRACTUAL CAPACITY: INSOLVENT
• Contractual capacity of an insolvent person: General

• Insolvent person = Someone who’s liabilities exceed their assets (may be referred to
as a bankrupt.
• The mere fact a person is insolvent does not necessarily mean that such a person’s
contractual capacity is affected. Only once a court has granted an order of
insolvency placing the person’s estate under sequestration is his/her capacity
limited.
• Being declared insolvent:
• The High Court has the power to declare someone insolvent
• The declaration is in the form of a sequestration order which gives control of the insolvent’s
assets to a trustee.
• To sequestrate means to take legal possession of the insolvent’s property after the
court declared someone insolvent until all liabilities have been settled.
 CONTRACTUAL CAPACITY: INSOLVENT
• Contractual capacity of an insolvent person

• Full contractual capacity except for 3 instances.

• In terms of the Insolvency Act, 1936, an insolvent only has limited contractual
capacity in the following 3 instances.
1. Contracts that would dispose of any assets that form part of the insolvent estate;
2. Contracts that would negatively effect the insolvent estate; or
3. Contracts that would place the insolvent in the position of a general dealer or manufacturer.

• Should an insolvent want to enter into any of the above contracts, they would need
to obtain the consent of their trustee.

• If they do not have their trustee’s consent, the contract will be voidable at the
instance of the trustee.
 CONTRACTUAL CAPACITY: NATURAL
• Natural persons with full contractual Capacity

• If a persons does not fall into one of the categories of zero or limited
contractual capacity, then they are considered to have full
contractual capacity.

• NOTE: Subject to various statutory provisions, a natural person who

otherwise has full contractual capacity, and who is found guilty of
fraud is disqualified from being appointed as a company director.
WHY? See next slide *
 CONTRACTUAL CAPACITY: NATURAL
• Contractual Capacity of juristic persons

• Juristic Persons do have contractual capacity, subject to:

• Juristic entities such as partnerships and trusts do not have their own
contractual capacity, but it is rather the contractual capacity of the partners
and trustees which is relied upon.
• Even juristic persons with contractual capacity need to have natural persons
act on their behalf in the exercising of their contractual capacity.* These
natural persons in turn need to be duly appointed representatives.
 CONTRACTUAL CAPACITY: NATURAL
• Contractual Capacity of the state

• The State and its various organs have contractual capacity.

• There is thinking that says that the State has to exercise its
contractual capacity in accordance with the principles of public law.
• State cannot contract out of its powers and responsibilities.
• The State’s ability to contract freely is limited owing to various
regulations, e.g. tender procedures.
END