6. Contents and Operation of a contract (Chap 9-11).docx

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1 6. Contents and operation of a contract I. Introduction Contracts can have the following consequences : a) The creation of obligations and; b) The creation of powers to create (an option agreement), amend (as in NBS Boland v One Berg River Drive , where the bank had the power to charge a higher interest rate if it wanted to) and terminate obligations (a lex commissoria ). The contents of a contract, and therefore its consequences are determined by: a) The intention of the parties (express or tacit terms); b) Reasonable reliance of intention or consensus and; c) Objective factors, such as legal policy ( ex lege terms). II. Parties to a contract 1. Introduction A contract is a bilateral juristic act involving at least two people. Sometimes one of those people is an agent acting on behalf of a third party. 2. Multiplicity of parties This occurs when an obligation in a contract has more than one debtor or creditor . The case of more than one debtor is called joint liability , whereas the case of more than one creditor is called joint entitlement . An example would be a couple buying a house together. They are joint debtors with regard to the payment of the purchase price and joint creditors with regard to the transfer of the house. a) Types of joint liability or entitlement There are three types of joint liability/entitlement: 1) The first is simple joint liability or entitlement – an example would be X lending R6000 to A, B and C. A must pay back R2000, and B and C must do the same. This is actually
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2 just three separate obligations . In the case of mora, X will have to write three separate letters of demand to each debtor. If A goes insolvent, X must make a claim against A’s insolvent estate. Each debt prescribes and is interrupted separately. 2) The second is common joint liability or entitlement , where performance can only be claimed jointly from the debtors . In the case of common joint entitlement, the creditors must claim together and in the case of common joint liability, there is one obligation held against the debtors jointly. An example is if couple A buys a house from couple B. The performance is not divisible, and it therefore means that each couple, in their position as debtors, are jointly liable and in their position as creditors must claim together. 3) The third is joint and several liability or entitlement (or solidary liability) , where, in the case of joint and several liability, debtors are liable jointly and severally. This means that the creditor can choose how he wants to sue the debtors. He can sue one for everything, sue all of them together, or in whatever combination he wishes . In the case of joint and several entitlement, creditors are free to sue by themselves or jointly. This is used often in credit agreements because it is so advantageous for creditors.
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