BER310 Explanatory notes

Mr S Makhubu
Study unit 2.2: Contractual Capacity as a
Requirement for the Formation of
Contract
 INTRODUCTION TO CONTRACTUAL CAPACITY

The capacity to conclude a contract is known as a contractual capacity and it

has two components:

❑ Ability to form an intention or will (ability to intend to do something)

❑ Ability to act with sound mind towards that will or intention (appreciating the
rights and duties in the contract.)
WHAT IS A PERSON OR LEGAL SUBJECT?
❑ Persons also known as legal subjects are the holders or bearers of rights and
duties.
❑ Legal subjects or persons have legal capacity from birth to death.

❑ We have two types of legal subjects, natural persons and juristic persons
(entities such as companies, Universities).
❑ All human beings are natural persons and have legal capacity.
❑ However, factors such as age, gender, health and legal consequences (marriage
and insolvency) may affect their status.
❑ The status of a person affects or determines her contractual capacity.
Legal or juristic persons

❑The law also grants legal/juristic personality to entities such as

Universities, Societies and Companies such Eskom SOC, Absa Bank
Ltd.

❑These are bearers of rights and duties and have contractual capacity.

❑They exist independently from founders and controllers.

Legal persons for the purposes of the Act (CPA)

❑However, partnerships and joint ventures are not separate juristic

persons.

❑However, as in terms of Consumer Protection Act (‘CPA’),

partnerships, body corporates and trusts are regarded as separate
juristic persons.

❑Note this is for the purposes of the application of the CPA.

Intra vires and ultra vires actions of companies

Intra vires actions

❑Legal/juristic persons are established with specific aims/objective. E.g to

transport people and goods through the air. (flight company like SAA).

❑They must conclude acts that are intra vires or in line with their
objectives (scope). These acts are valid.
Ultra vires (outside the scope of the objectives)

❑Acts that are outside or not in line with the objectives of the juristic person are
said to be ultra vires and invalid. (or in Companies they may be valid but
prohibited and this means that entities may claim damages from directors or
controlling minds for acting ultra vires.)

❑Since they are artificial persons, they need natural persons to act on their behalf.

❑These are known as organs. E.g In companies directors act as organs.

❑ (Shareholders are also known as organs of companies).

 PERSONS WITHOUT CONTRACTUAL CAPACITY
The are persons who are below the age of 7
❑A person who is below the age of 7 is an infant and has
legal capacity but does not have contractual capacity.
❑Her or his guardian can manage his or her estate or
issues pertaining to his maintenance or support.
❑ A Guardian cannot enter into an engagement contract on
behalf of the infant.
❖N:B From 7th birthday, a child graduates to the status of a
minor and his contractual capacity is limited.
PERSONS WITHOUT CONTRACTUAL CAPACITY CONTINUES
Mental health care users – mentally deficiet

❖All have sound mind until proven otherwise.

❖Any person alleging unsound mind and incapacity must
prove that.

❖When one is alleging that a person who is a Mental

Health Care User had contractual capacity must prove
that. (Lucid moment)
❖Not all persons with mental limitations are classified as
mental health care user or of unsound mind.
Mental health care user continues
• The mental limitations hinder them from being able
to form a will or intention and act with sound mind
towards that will.
• Thus, they lack contractual capacity.
• Contracts with people who lack contractual capacity
are null and void.
• Facts of each case will determine whether a person
had contractual capacity or not.
Mental health care users continues - Influence of
the CPA
• CPA prevents contracts with persons who lack contractual
capacity where the supplier knew or ought to have known that
the consumer lacked contractual capacity.
• CPA does not apply where the consumer or person acting on his
or her behalf misrepresented that the consumer had
contractual capacity whereas this is not case.
• Mental Health care users or persons with no contractual capacity
cannot conclude contracts, however, administrators or
curators can conclude contracts on the behalf.
 Persons under the influence of alcohol or drugs
• A person who is under the influence of drugs or alcohol has no
contractual capacity as long as he is still in the state of
intoxication or oblivion.
• Thus, he/she cannot form a will and act with sound mind towards
that will.
• He cannot understand and appreciate the consequences of his
actions.
• Contracts are null and void and party who has performed may
claim return of goods and when impossible, may claim in terms
of unjustified enrichment (enrichment without legal
basis).
Where an intoxicated person still has contractual capacity

• However, when he or she still has contractual capacity while

intoxicated, contracts concluded are valid.

• Person who claims contractual incapacity due to intoxication must

prove.
PERSONS WITH LIMITED CONTRACTUAL CAPACITY (SHOULD BE
ASSISTED BY GUARDIANS OR APPOINTED PERSONS)

• Minors 7 years or older but not yet 18.

• Minors can conclude contracts with the help of others. The

aim of the help is aid the limited contractual capacity.
How do minors gain the status of majority?

Minors can gain the status of majority in three ways:

✓ Attaining 18

✓ Marriage

✓ Order of court (emancipation – declared to be legally a major

in the eyes of the law). Determining factor is independence
from parents (own income).
Limited contractual capacity continues
• The help or assistance is from the guardians who are both
natural parents and adoptive parents.
• Where they are deceased, the Court or Master of High
Court or last will, will appoint a tutor to assist the
minor.
• Official letters should be issued by the Master before tutor
can act.
• Some contracts will require the consent of guardian or tutor
for the minor to be bound.
 Contracts binding on minors
Where a minor will be viewed as person with full contractual
capacity
The consent of a parent or guardian is not necessary:
• Where minor acquires rights without duties (donation),
• Depositing money in their account.
• Consenting to medical treatments.
• The key here is that the contract must be to the advantage
of the minor.
• If the contract is to their disadvantage, it can be set aside.
Where minor acts with the help of the guardian

• Some contracts require the assistance of the parent or

guardian/tutor.eg Purchase and sale.

• The guardian can give consent before, during and after

conclusion of the contract.

• Where consent is given after the conclusion of the contract it is
ratification. (Making the act valid and binding from the date of
conclusion.)
• The minor can also when attaining majority, ratify contracts
concluded without the help of the parent or guardian before attaining
majority (18 years).
Where guardian acts on behalf of the minor
• Here the guardian/tutor may act on behalf of the minor in
transactions that are to the benefit of the minor.

• If detrimental to the minor, then the court may intervene

and set aside the contract.

• Restitution will then take place and parties will be placed

in the position they were in before the contract.
Where additional consent is required
• Where immovable property of a minor does not
exceed R250 000 is sold or alienated, the
consent of the Master of the High Court is
required.
• Where it exceeds R250 000, consent of the High
Court is required through an application.
• Engagement on behalf of the minor is prohibited.
Emancipation of a minor (freedom from parental
authority) this is where the guardian/tutor grants a
general/blanket consent:

• The minor must be financially independent.

• This emancipation has the effect of granting contractual

capacity to the minor.

• Where minor falsely creates an impression that she is

a major, she will be bound by the contract and there
is no restitution.
Minor will always be entitled to restitution
(given back what he lost) if the contract is to
his detriment except where:
❖ He falsely created an impression that he is a
major
❖ He accepted as valid and binding the contract
(ratify)
❖ The action has prescribed (time within which to
file action has lapsed).
If the court orders restitution to the minor, the minor
will be liable to compensate the supplier for use of the
goods of contract.
 Contracts not binding to minors
1st situation
❖ Where the guardian/tutor acts on his own behalf not the
minor.

❖ Where the guardian/tutor acts outside his or her scope.

(ultra vires)

❖ Where the guardian/tutor acts without the consent from

Master or the High Court.
2nd Situation

▪ Where the minor acts as the guardian’s/tutor’s

representative and the latter acquires rights and duties
from the minor’s action.
3rd situation (important)

❑ Where the minor acted without consent of the guardian/tutor.

The minor will not be liable unless the:

✓ guardian/tutor ratifies and

✓ or minor ratifies after attaining 18.

If so, then minor will be held liable for his or her duties in the contract.
Position of the parties in the third situation:

❑ Where no performance has been made by either party, then

performance from the minor cannot be claimed.

❑ Minor can claim from the other party after ratification.

❑ The other party can withhold performance until ratification.

❑ Where the minor has performed and the other party has not
performed, then performance can be reclaimed from the other party
where no ratification is has taken place. The minor will not be bound.
3rd situation continues

❑ Where the other party has performed partially or in full, the minor
cannot be coerced to perform when there is no ratification.

❑ The other party can claim her performance pending ratification.

3rd Situation continues

When the other party has performed and the value of goods has
diminished, or they are alienated or destroyed, then the other party can
claim from minor in terms of unjustified enrichment provided:

✓ The minor’s estate is enriched in the amount of the increase of her

estate at the time of the institution of the action. Limited to the
value of the performance that is still in existence.
✓ The minor can be held liable for the savings his estate made due to
enrichment.
✓ Where minor exchanged the performance for something else, then
the substitution can be claimed from the minor.
✓ The minor can be held liable for intentional damage caused to the
property of the third party
 Where CPA is applicable where the consumer is a minor.
Where the minor concludes a contract with the supplier while the
minor :
❑ Is not emancipated,

❑ Without consent of the an adult responsible for the minor

❑ Where the adult responsible does not ratify and

❑ The minor does not ratify when reaching 18 or after emancipation,

The contract is VOIDABLE by the consumer.

• However, where the minor or the guardian have falsely created an

impression that the minor has contractual capacity or dishonestly

concealed that he lacks contractual capacity, the minor forfeits the
right to render the contract void.
Types of marriages
• Marriage Act of 1961
• Civil union Act of 2006
• Recognition of Customary Marriages Act 1988
• We also have religious marriages.
• Marriages out of community of property parties must conclude
(ANC)
• Antenuptial contract (‘ANC’) must be in writing, signed, be sealed
by a notary and filed at the deeds registry
In community of property before 1 Nov 1984, Position before 1 Dec
1993
• Husband was in control of the estate and wives were treated as minors.
• Husband could bind and dispose the estate.
• Wives were not allowed to bind the estate without consent of
husbands except with regards to certain exceptions: See exceptions
in the book.
• Ratification (accept as binding and valid) by husband was possible and made
the acts binding and valid.
• When wife acted without consent, the estate was not bound, but the other
party was bound. The estate was only bound when the husband ratifies.
• If the other party has performed, could claim in terms of enrichment.
• In marriages in community of property after 1 Nov 1984, husband and wife
have equal powers. Husbands marital power was abolished.
 Marriage out of community of property before 1 Nov 1984 before 1 Dec
1993
Three things could be excluded by (ANC) in marriages out of community of
property concluded before 1 Nov 1984.

• Community of property
• Profit and loss
• Husbands marital power

➢ When excluding community of property means that you have the two
separate estates of both spouses before marriage and one joint estate with
gains and losses from the date of marriage onwards. Before 1 Dec 1993 all
these were controlled by husbands.
➢ When excluding community of property and profit and loss. You have
only two separate estates of both spouses. And before 1 Dec 1993, they were
controlled by the husband.

➢ When excluding all three, you have two separate estates and each party has
contractual capacity with respect to their own estate.
Married after 1 Nov 1984 In community of property. (Coming
into effect of the Marriage Property Act 88 of 1984)

• (Husbands marital power was abolished in some marriages in terms of

the aforementioned Act)
• Significant moment of the coming into effect of Matrimonial Property
Act 88 of 1984
• Both parties have equal powers.
Three types of contracts where consent is required and form of consent:
✓Consent with no formalities given expressly or by conduct ( selling
furniture)
✓Written consent (for transfer of shares/investments)
✓Written consent with two witnesses (for sale of an immovable)
Ratification is possible where prior consent is not required by law.
Contracts without consent from the other spouse:

• Where consent is not given, the contract is invalid.

• But where the other party in the contract did not know or could
not have easily known that consent is required, the contract will
be valid.
• Upon divorce or death, the estate of the party who concluded a
contract without consent is liable to compensate the estate of the
other party for debts incurred because of those contracts.
 Defending of actions

• Consent is needed to defend an action and spouses must be sued

jointly.

• Unless in their respective separate estates, business or profession.

• Consent is required to defend action, but third parties cannot use

absence of consent to nullify proceedings.
Contributions to household

• Spouses must contribute in accordance with their financial

circumstances.

• Where one is contributing more, may claim from the other spouse.

• Spouses are liable jointly and severally for household goods.

Marriage out of community of property
• Marriage out of community of property you have two separate estates, parties have
contractual capacity.
• Accrual system must be excluded or it will be applicable by operation of the
law.
• If applicable, what accrues to the two estates is shared equally upon divorce or death.

• Accrual – increase in the estate of the spouses, if no increase then there is no

accrual.

• And donations to one another excluded and donation by others which are
specifically excluded will also be deducted.

• The party with smallest accrual will be entitled to the difference of accruals of
the two estates.

• The court may change the matrimonial regime of marriage on application. However, valid
reasons must be furnished and timeous notice to creditors must be given to all creditors.
Other persons with limited contractual capacity
Prodigals
• A prodigal is person who has the habit of wasting his estate or
who cannot manage his affairs.
• The High court can declare a person a prodigal.
• A curator will be appointed and will assist such a person.
• Consent of the curator is needed before the prodigal can bind
his or her estate.
• Contracts where the prodigal’s estate gains rights, consent is not
required.
• The prodigal status can only be removed by another court order.
Persons under curatorship or administration
• Person who cannot manage his affairs due to illness or
accident can be assisted by a curator.
• Curatorship appointment does not affect the contractual
capacity of the person.
Insolvent person
• When a person is insolvent (liabilities exceed assets and not being able to pay
debts as they fall due) the person will be sequestrated.
• Before the order of sequestration, the person cannot dispose assets without
value or treat creditors unequally. Such is null and void.
• After sequestration order, the trustee will gather all the assets of the insolvent
and convert them to cash (liquidate) and distribute among creditors.
• Property gained after sequestration can be disposed by the insolvent.
• Insolvent can marry during insolvency after sequestration.
Persons with full contractual capacity but limited due to legal
requirements.
• e.g. Persons who have been convicted of crime involving dishonesty are
disqualified from being appointed as directors.
SELF - ASSESSMENT QUESTION

Three months ago, James inherited an amount of R3 million from the

deceased estate of his late Father. Two months later, James has wasted
R2 million by throwing parties for his friends, buying expensive clothes,
liquor, cars and travelling abroad. His sister Lerato is worried about
James and approaches you for advice whether there is any recourse
that can be used to prevent James from wasting his inheritance. Advise
Lerato accordingly. (5)