Elements of a contract
- A contract consists of an offer by the offeror (the seller or service provider) to the offeree (the buyer or client) to buy goods (movable or immovable) or services, for an agreed price or fee;
- A contract becomes binding when the offeree accepts the offer;
- Obviously, there must be agreement as to what is being offered;
- There must be an intention to contract freely and voluntarily. Any misrepresentation by either party will render a contract void. Anyone who is coerced or bullied into signing a contract will have a defence of duress.
- The person who wants to conclude a contract must also satisfy certain legal requirements:
- He or she must have mental and contractual capacity. This means that the person must be sane and not under the influence of any drugs or alcohol which could affect his ability to fully appreciate what he is agreeing to;
- He or she must be a major (18 years or older) unless his parents or guardian assist him;
Oral or written
As a rule, parties can do a deal with a handshake, or even orally.
However, in South Africa, there are a few contracts that must be written to be enforceable:
- An agreement to sell immovable property (land, house or building);
- Suretyship agreements, credit agreements, antenuptial (marriage) contracts, leases over ten years, and contracts for executionary donations (to be made later);
Some contracts, both oral and in writing, may not be enforceable, e.g. if they are illegal, contra bonis mores (that means against public policy or norms) or impossible to perform.
Importance of written contracts
Why is it important to reduce a contract to writing, even if you don’t have to, in law?
- It’s easier to prove the existence of a written contract;
- Written contracts provide individuals and businesses with a legal document stating the expectations of both parties;
- If a party breaches a term of the contract, the consequences of a breach and the remedies, are set out.
Contracts in business
- Written contracts are for your protection;
- A business contract states the terms and conditions of any business transaction, including product sales and delivery of services. This helps the parties involved avoid any type of misunderstanding that may arise, in the absence of a written contract;
- If you use written contracts, it is far less likely that you will end up in court – your clients will be much more inclined to work with you to find a solution and work things out.;
- If you have an oral agreement, you might forget some points that you have agreed on verbally, with the passage of time. But with a written agreement, all the terms and conditions are clear, and you can always amend the agreement with the consent of both the parties.
- Companies also can use non-compete agreements to limit the type of services offered by former employees who have specific knowledge about the company’s specialized business services.
Termination of a contract
- Some agreements terminate automatically after a fixed term (such as a property lease) or event (fixed term employment contract),
- Parties to an agreement that carries on for an indeterminate period, can mutually end a contract if the business relationship has ended;
- An oral contract can be terminated, verbally;
- Parties should formally terminate a written contract, in writing.
- If a party is in breach of a written contract (e.g. the goods sold are defective or the services provided, are poor), the other party has the remedies set out the contract, or at law (such as the Consumer Protection Act);
- Some contracts require the one party to give the party in breach written notice to remedy the breach, before the first party can cancel.
- Termination will not affect any liabilities for breach of contract that occurred before the contract is ended.