CONTRACTS FOR DUMMIES 101
Simply put, a contract is an agreement entered into between two or more parties with the serious intention of creating a legal obligation.
Contracts are essential to regulate certain relationships as it provides certainty as to what the parties expect from each other. Contracts provide a legal framework which regulates dealings between parties and provides the peace of mind that the law will uphold their agreements and enforce them if necessary. It can therefore be said that contracts contribute to order in the society.
When parties enter into a contract, obligations are created. An obligation in this sense is a legal relationship consisting of a right to performance by the other party, coupled with a corresponding duty to perform “your end of the bargain”.
REQUIREMENTS
Not every agreement will be legally recognised and therefore enforceable by law. A couple can agree that she will cook and he will do the dishes, but this does not mean that a legally binding contract exists between them.
The requirements for a legally binding contract are as follows:
- Consensus – there must be a “meeting of minds” with regard to the intended obligation and performance, the intention to be legally bound, and the parties must be aware of their agreement.
- Capacity – The parties must have the required capacity to conclude a contract. This relates to age and mental capacity.
- Formalities – Certain contracts require compliance with certain formalities, eg. it must be reduced to writing, must be signed or signed in front of a notary and subsequently registered in the deeds office.
- Legality – The terms of the contract may not be prohibited the law and should not be contrary to public policy.
TYPES OF CONTRACT
Each contract is drafted with the specific needs of both parties in mind. There is therefore no standard template which is used for every transaction. The contract will be governed by the type of transaction envisaged by the parties, for example sale of a business, sale of property, employment, session, credit agreements, partnership agreements, acknowledgement of debt, lease agreements etc. Each type will be governed by its own special set of rules.
GOVERNING LAWS
Contracts may be governed by various different acts, depending on the type of contract. An employment contract would have to comply with the Labour Relations Act and Basic Conditions of Employment Act and a rental agreement would have to comply with the Rental Housing Act and so forth.
However, there are a set of acts that will commonly have an effect on most types of contracts. These are:
- The Constitution – This is the most supreme law in South Africa and enshrines the Bill of Rights which contains fundamental rights which must be respected and adhered to at all times.Contractual terms which are not in accordance with the constitution, will not be enforceable.
- The Consumer Protection Act – This act strives to neutralise the imbalances in bargaining power that may exist between suppliers and consumers. This act guards against concepts such as “unconscionable conduct” and “unfair, unreasonable or unjust contract terms and prices”.
- The Protection of Personal Information Act – This act aims to protect the personal information of consumers and should be adhered to when obtaining personal information of contracting parties.
COMMON TERMS CONTAINED IN CONTRACTS
It was stated above that there is no “standard contract” and that each contract is tailor made to suit the parties. However, there are some standard clauses of a general nature that will be found in most contracts. These clauses regulate general aspects such as variation, waiver, jurisdiction, interpretation, breach, etc.
- Whole agreement – no party will have any right or remedy arising from any undertaking, warranty or representation which is not contained in the particular contract.
- Variation – this clause will determine how the agreement may be changed by adding terms or deleting terms. Any changes will mostly have to be in writing and may be regulated by relevant legislation.
- Jurisdiction – The parties may consent to the jurisdiction of the Magistrate Court should any dispute arise regarding the contract.
- Addresses for service – The parties elect certain addresses as their domicilium citandi et executandi for purposes of the contract. Notices delivered to these addresses by legally recognised means, will be deemed to have been received by the relevant party.
- Interpretation – definitions may be included as well as other directions. For example, “reference to one gender, shall include reference to the other’.
- Costs – parties may agree which party will be responsible for the costs of the contract, but most commonly this clause is used to provide for the event that action is instituted on the agreement. The contract will almost always provide that the successful party will be entitled to legal costs on the attorney and client scale.
- Breach – parties may agree on the way forward should either party not comply with the contract as a whole or with some of the enforceable clauses. Parties may therefore stipulate which remedies will be available in the event of breach.
- Confidentiality – the parties may agree to keep the content of the agreement confidential.
BREACH
When the parties conclude a contract, they acknowledge that they will have certain responsibilities towards each other and that these responsibilities may be legally enforced. If a party then fails to honour its commitments, such a party would have committed a breach of contract. This will lead to the other party suffering damages in one way or another.
Contracts may be breached by an act or omission.
Five types of breach exist:
- Positive malperformance – this relates to the quality and content of performance. The party did indeed perform, but did not perform as contracted.
- Mora creditoris – Where the creditor’s co-operation is essential to enable the debtor to perform his contractual obligation, the creditor is obliged to co-operate. Should this co-operation be necessary and the creditor fails to oblige, the creditor would have committed breach.
- Mora debitoris – the culpable failure of a debtor to make timeous performance of a positive obligation.
- Repudiation – a party demonstrates, by words or by conduct, and without lawful excuse, an unequivocal intention to no longer be bound by the contract.
- Prevention of performance – where the fault of one party renders it impossible for the other party to perform its obligations.
REMEDIES
Various remedies are available to the “injured party” when the other party has breached its obligations in terms of the contract. The choice of remedy will be determined by factors such as the type of contract and type of performance, actual damage suffered and whether performance is still possible.
- Remedies that aim to keep the contract in tact:
Exceptio non adimpleti contractus – the innocent party may refuse to perform its obligations in terms of the contract until the guilty party performs its obligations.
A claim for specific performance – the innocent party may apply for a court order to compel the guilty party to render its performance.
Interdict – the innocent party may apply for a court order interdicting imminent and anticipated breach. - Remedies aimed at cancellation of the contract:
The innocent party will have the right to cancel the agreement in exceptional and limited circumstances. The breach would have to be serious and the guilty party must receive notice of the cancellation. This remedy also involves reciprocal restitution in that every party will be obliged to return that which was already performed or delivered by the other party. - Remedies aimed at compensating the innocent party for any loss or damage suffered as result of the breach of contract:
This remedy is available in addition to any one of the remedies mentioned above.
The innocent party may have a claim for damages if he can prove that he has suffered damages. The innocent party may even be entitled to interest.
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