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The Basics of Contracts

10.11.2020
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If you’re even remotely familiar with the concept of law (and let’s face it, we all at the very least know that the law exists, even if we’re not aware of the finer details), then you’ll have heard of a contract.

It may be of interest to you to learn that even if you’ve never signed a contractual document in your life, you’ve still almost certainly concluded a contract with someone (for example, if you popped out to buy bread and milk earlier, you entered into a tacit contract of sale with the supermarket). Contracts are literally everywhere, and they are nigh on unavoidable in the modern economic landscape.

WHAT IS A CONTRACT? WHAT TYPES OF CONTRACT ARE THERE?

A contract is basically an agreement between two or more parties that satisfies the requirements for a valid contract (see the section on the requirements of a valid contract below). It would take all day to list the various types of specific contract that one might come across, but for the purposes of writing an article that won’t put the reader to sleep, they can conveniently be lumped into 3 distinct categories:

Written Contracts

These are the contracts that everyone knows (but nobody loves). This is a written record of an agreement between the parties to the contract. The law requires that certain contracts (for example, contracts for the alienation of land) must be in writing for them to be valid.

Verbal Contracts

These are contracts that the parties have concluded verbally (i.e. through a conversation). Although not reduced to writing and signed by the parties, such contracts are generally binding in terms of South African law.

Tacit Contracts

Tacit contracts are contracts that are inferred from the way that the parties act or conduct themselves (i.e. where the parties acted in such a way that it may create an inference in the mind of the parties that they intended to enter into a contract), and are therefore not reduced to writing or verbally articulated. These contracts are generally considered to be binding in South Africa. However, tacit contracts still need to conform to the requirements of a valid contract.

WHEN DO I NEED A CONTRACT?

Contracts are a fantastic tool for recording the obligations of the parties to the contract, and setting out the consequences if one of the parties fails to adhere to their obligations.

If you’re starting a business, or you’re selling or buying something, or you’re starting a new job or engaging a new employee, or you’re providing services to someone in return for payment, the absolute best way to create certainty as to what everyone’s role in the relationship is, and what’s expected of them, is to reduce it to writing in a contract and have it signed by both parties. Doing so creates binding obligations on the parties, which have consequences for failure to adhere to them.

Long story short: if you’re confused about whether you need a contract, you probably need a contract.

REQUIREMENTS OF A VALID CONTRACT

There are 5 basic requirements for a valid contract (whether the contract is written, verbal or tacit):

Consensus

The parties to the agreement need to have a “meeting of the minds”, known in law as a consensus ad idem. Simply put, the parties need to be in agreement that they will be creating binding legal obligations between them that will have consequences for non-fulfilment.

Capacity

The parties must be legally capable of concluding a contract. This means that they must be (in the case of natural persons):

  • of legal majority (i.e. they are old enough that the law considers them to be sufficiently capable of creating binding obligations);
  • of a clear and sober mind (i.e. they cannot suffer from any condition that results in the law considering them to not be able to manage their own affairs e.g. insanity, influence of alcohol or narcotic drugs); and
  • not subject to any legal impediment that would remove their capacity to enter into a contract (e.g, the person must not have been sequestrated in the last ten years, or the person must not be subject to any curatorship).

Certainty

The terms of the contract must be certain or reasonably ascertainable. This suggests that the parties must be certain about the legal consequences of the contract. This does not mean that the parties must be aware of the entire legal process of a court, but it does mean that they must know that failure to fulfil their obligations in terms of the contract will have consequences and they must be aware of what those consequences are. Someone who concludes a written contract will (in a large majority of cases) not be able to claim that they didn’t know what the consequences of the contract are, because they would be written in the contract that the person would have signed.

Lawfulness

The contract itself (as well as the obligations contained therein) must be lawful. This means that you cannot enforce a contract that is illegal (e.g. a contract to supply illegal narcotic drugs). Interestingly, illegal contracts are not void ab initio (‘from the beginning’), but they simply cannot be enforced in South African law.

Possibility of Performance

Performance of the obligations in a contract must be objectively possible. This means that you cannot have an obligation in a contract that no one on Earth could perform (a silly example is that you couldn’t engage someone to fly unassisted without an airplane, because no one can do that).

Sometimes, there is an obligation in a contract that someone else might be able to do, but the contracting party cannot do. This is called “subjective impossibility” and it can result in a claim for breach of contract.

WHAT HAPPENS WHEN MY CONTRACT IS BREACHED?

When a contract is breached, the first thing that you do is check whether the contract is valid and binding (have the parties signed the agreement? Has the agreement been cancelled at any stage?). If it is, then you would read the clause of the contract that you suspect the other party has breached and assess whether they have, according to the wording of the clause, indeed breached it. If they have breached it, your next stop is the breach and/or dispute resolution clause, which sets out what needs to be done in these circumstances.

Should you be confused about your contractual obligations (or just the contract in general, those things can get hectic), or you want a contract drawn up or you have a contract that you need assistance in enforcing, don’t hesitate to get in touch with Legalese!

Kyle Freitag – 10 November 2020

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