By Aleshia van der Ploeg, Director VDP Legal Consulting (Pty) Ltd
Many entrepreneurs will enter into many contracts in their lifetime. Unfortunately, some are not even aware that they have entered into a contract, and some have no idea of what they are actually signing. The law of contract is important because it gives importance and enforceability to a promise.
WHAT IS A CONTRACT?
A contract is an agreement two or more parties enter into with the serious intention of creating a legal obligation. Contracts aren't promises, they're agreements defined by law. Contracts create legal rights and duties between two or more parties. Not all contracts and agreements are legally binding - Contract law defines which agreements are - and are not - legally binding. Not all contracts are valid, even if they were voluntarily signed by all parties. Contracts are legal agreements that may or may not be written.
ESSENTIAL ELEMENTS OF A CONTRACT
For a contract to be considered valid and binding in South Africa, the following requirements must be met:
1. CAPACITY -The parties must have the capacity to contract;
2. OFFER & ACCEPTANCE - For an offer to be valid, it must be: Definite, Complete, Clear and Certain. For an acceptance to be valid, it must be: Unconditional; Unequivocal; Consciously accepted by the person to whom it was addressed; Compliant with any formalities set by law or the offeror.
3. CERTAINTY- The agreement must have certain and definite terms. Contracts that are not certain are vague, and a court will not uphold them. There must be consensus between the contracting parties.
4. FORMALITIES – Certain contract require certain formalities - eg: a contract for sale of land must be in writing; similarly, suretyship agreements, credit agreements, ante nuptial (marriage) contracts, leases over ten years, and contracts for executionary donations must be reduced to writing and signed by the parties .
5.POSSIBLE -The contractual obligations must be possible of performance - There can be no contract to do something that is impossible.
6.LAWFUL - The agreement must be lawful and not against public policy. Like impossibility, there can be no valid contract to do something illegal.
BREACH OF CONTRACT
When someone does not do what they have agreed to do under a contract, they are breaching that contract, and the other party will normally be entitled to compensation or to get out of the contract. But, not just any breach will do: The general rule is that a breach must be ‘material’ before the other party can get out of the contract.
There is no rule for telling when a breach is ‘material’ – it will almost always depend on the facts of the case. A ‘material’ breach is a ‘serious’ breach: a failure in an important part of the agreement.
REMEMBER: The general rule is that you are bound by what you sign – this is why it is very important that you read your contracts before signing them and, whenever possible, look for assistance in doing so.
Aleshia van Der Ploeg LLB (RAU) was admitted as an Attorney of the High Court in South Africa in 2006. She is a member of the Law Society of the Northern provinces. She has 10 years post-qualification experience in corporate, commercial, labour and general law. She practised as an attorney and served as a Director before forming her own consulting firm. www.vdplegal.co.za | Email firstname.lastname@example.org
Read more articles by Aleshia