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UNIT 5 - CONTRACTUAL CAPACITY Cheat Sheet (DRAFT) by

One of the requirements of a valid contract is contractual capacity. Only legal subjects who have this may enter into a contract.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

OTHER REQUIR­EMENTS FOR A VALID CONTRACT

NB - a contract is an agreement (based on consensus) between legal subjects who have contra­ctual capacity to do so and which is lawful, physically possible, certain and complies prescribed formal­ities reached with intention of creating a legal obligation with resulting rights and duties.
LEGAL SUBJECTS
1) Natural Persons
2) Juristic Persons
A legal subject is a bearer of rights and duties.
Only legal subjects have contra­ctual capacity.
To reach valid consensus, all the parties to the contract must have the necessary contra­ctual capacity.
Requir­ements for contra­ctual capacity:
(1) the ability to form a will; and
(2) the ability to act with sound mind and judgement.
The party must be able to understand the nature of the contract and the conseq­uences of entering into at the time of entering into the contract.
Juristic Persons
Has a separate legal person­ality and may contract in its own name. However, its contra­ctual capacity is not unlimited. It is shaped by:
- formal­ities (statutory and internal compliance requir­ements)
- legality (lawful authority and lawful purpose)
Qaukeni and Others v F V General Trading CC 2010 (1) SA 356 (SCA)
- Non-co­mpl­iance with services procur­ement formal­ities.
- The SCA ruled that the contract was invalid and could not be extended.
Natural Persons
Contra­ctual capacity - Age of majority & sound mind
Vallaro v Road Accident Fund 2021 (4) SA 302 (GJ)
Facts: an advocate concluded a Contin­gency Fee Agreement with an adult male with severely impaired mental faculties.
Court held: agreements entered into by persons who lack juristic capacity to do so is void. No life can be breathed into an agreement that is void by a curator through ratifi­cation.

NATURAL PERSONS WITHOUT CONTRA­CTUAL CAPACITY

This category of persons cannot appreciate the nature and conseq­uences of their acts.
(1) Infans
(2) Mentally ill persons
(3) Intoxi­cation: may result in the temporary loss of contra­ctual capacity but only if the person was under the influence of drugs/­alcohol to a degree that he/she either did not know that he/she was entering into an agreement.
- Contracts are VOID.
- BURDEN OF PROOF: he who alleges.
MENTAL ILLNESS
Consumer Protection Act 68 of 2008
S39(1)(a) purports to change common-law position if a person has been declared mentally incomp­etent.
In terms of this section, the contract is only void if:
- the supplier 'knew or could reasonably have determ­ined' that there was a court order.
S39(2) further provides that the contract will be valid if the mentally ill consumer created the impression that there was no limit on her capacity to contract.
 

PERSONS WITH LIMITED CONTRA­CTUAL CAPACITY

(1) Minors - 7-18 years.
(2) Married persons (ICOP)
(3) Insolvent persons
(4) Prodigals
MINORS
Assisted by parent­s/g­uar­dians.
- without assistance they obtain rights NOT duties. e.g. acceptance of donation.
- contracts concluded without assistance are NOT VOID but voidable.
Emanci­pation of Minors
Express or tacit general consent by parent­/gu­ardian for the minor to enter into specific type of agreements without obtaining additional consent or assist­ance.
- rights and duties: minor not parents
High Court (HC) (Upper Guardian) can consent: if parent­/gu­ardian refuses.
- can set aside consent.
- minors bound by such consent but contract can be set aside if it can be shown that it was prejud­icial to the minor at the time of contra­cting.
Restitutio in integrum
- an action to return the parties to the position that they were in prior to contra­cting.
- can be done even if the guardian assisted, if the contract was prejud­icial to the minor.
- will be denied if the minor fraudu­lently pretended to be a major at the time of the conclusion of the contract.
MARRIED PERSONS (ICOP)
Co-owners of the joint estate in equal and undivided shares.
Parties can generally contract on behalf of the joint-­estate without consent.
However, in certain transa­ctions, the spouses' contra­ctual capacity is limited by the MATRIM­ONIAL PROPERTY ACT 88 OF 1984. These include:
(1) selling or pledging household furniture, or donating any asset of the joint estate,
(2) withdr­awing money from the other spouse's bank account, or selling shares or invest­ments (written consent)
(3) selling or encumb­ering immovable property or binding oneself as surety (written consent with TWO witnesses
- Transa­ctions in the ordinary course of business of the other spouse's business are exempted from this requir­ement.
INSOLVENTS
Insolvency does not affect contra­ctual capacity.
Unless a court order of insolvency places the person's estate under the seques­tration (S23 & S24 of the INSOLVENCY ACT 24 OF 1936)
- during seques­tra­tion, the insolvent person may still validly enter into contracts, provided that the person does not purport to dispose off any assets of the insolvent estate.
- furthe­rmore, the insolvent person requires a written consent of the trustee for any contract that is likely to affect the insolvent estate adversely (S23 & S24 of the INSOLVENCY ACT)
PRODIGALS
A person who has been declared a prodigal by a court of law has limited contra­ctual capacity:
- needs to be assisted by their curator to conclude contracts.
- without such assistance, a prodigal may contract only to obtain rights but not incur duties.
A person who is incapable of contro­lling their financial affairs, but has not been declared a prodigal, has full contra­ctual capacity.
 

NATURAL PERSONS WITH FULL CONTRA­CTUAL CAPACITY

If a person does not fall into one of the other previous catego­ries, then they are considered to have full contra­ctual capacity.
- subject to various statutory provisions, such as a person who is guilty of fraud being disqua­lified from being appointed as a company director.

JURISTIC PERSONS

Juristic persons do have contra­ctual capacity, subject to:
- entities such as partne­rships and trusts do not have their own contra­ctual capacity, but is is rather the contra­ctual capacity of the partners and trusties which is relied upon.
- even juristic persons with contra­ctual capacity need to have natural persons act on their behalf in the exercise of their contra­ctual capacity. These natural persons in turn need to be duly appointed repres­ent­atives.

THE STATE

The state and its various organs have contra­ctual capacity.
- state cannot contract out of its powers and respon­sib­ili­ties.
- its ability to contract freely is limited owing to its various regula­tions, most notably tender proced­ures.