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Contracts - A Legal Guide
Some insight into the nature of a contract.
Contracts - A Legal Guide
Some insight into the nature of a contract.
Reproduced with permission of the Law Society of South Africa
This page will give you some insight into what contracts are and how they operate. One must, however, remember that there are many different kinds of contracts and, although some are mentioned here, it is advisable to proceed with caution when entering into a contract and to consult an attorney in the event of any uncertainty.
General Principles
What is a contract?
A contract is an agreement between two or more people in terms of which one party offers to do, deliver or not do something, and the other part accepts this offer. Usually the part who accepts the offer must remunerate the other party or do something in exchange. For example, A offers to sell his bicycle to B for R100 and B accepts offer.
Are all agreements between two or more parties contracts?
No. The parties must intend legal and not merely moral consequences to arise from their agreement. This means that the parties must understand and intend that should one party not carry out the promise he made in terms of the contract, the other party may sue him in terms of the contract. For example, where A's girlfriend, B, promises to accompany him to a dance and B changes her mind after A has bought tickets to the dance, A may not sue B for the price of the wasted tickets, because both parties did not intend such legal consequences to arise from their agreement.
What are the requirements for a valid contract?
For a valid contract the following must occur:
· The parties must agree on all the essential terms thereof. One of the parties must make a firm offer to the other party and acceptance of the offer must in turn be communicated to the party who made the offer.
· The parties to the contract must have the legal power to conclude such an agreement. Minors, (persons under 21) or people who are mentally ill, for instance, may not enter into contracts.
· Parties may not contract to do something illegal.
For example, the sale of uncut diamonds without a license.
· Contracts where one party promises to deliver to do something which is impossible, cannot be enforced. For example, where one person sells the moon to another.
Must all contracts be in writing to be valid?
No. The most common of all misconceptions concerning contracts is that they must be in written form to be valid. If this were so, the majority of all contracts concluded daily would be invalid. Purchasing good, going to movies, using public transport and eating at a restaurant are examples of activities that include the conclusion of valid contracts as no specific legal formalities (such as reducing the contract to writing) are required. There are, however, exceptions and in certain specific instances the law requires that the contract be in written form. If the parties do not comply with this requirement and one of the parties is unhappy with the outcome of the arrangement, then the arrangement cannot be enforced in some of the instances where writing is a requirement. Some important examples of contracts that must be in writing, with or without other formalities, are marriage contracts, donations, sale of land (of which the hire purchase agreement is an example).
What are the advantages of reducing a contract to writing, if the law does not require this in the specific instance?
The terms or contents of a contract are easily proved if the contract is reduced properly to writing. Remember that an attorney draws up contracts as part of his daily work and is thus able to express more clearly in writing what the parties intend. A party relying on an oral contract will probably have difficulty in proving the contents in a court of law.
What are the pitfalls of signing a written contract that has been drawn up by the other party?
The contract could contain terms that were not part of the verbal negotiations and which are included solely for the benefit of the other party. Conversely, the contract might not contain terms or stipulations to your benefit which were agreed upon during the verbal negotiations. Remember: when in doubt, consult an attorney and go through written agreements very carefully. Never sign a contract without reading it merely because you are in a hurry or want to rid yourself of an irritating salesman.
What is breach of contract?
This means that one of the parties has in fact broken the agreement in one or more of the following ways:
· He has not done or delivered what he promised in terms of the contract.
· He has not paid for goods delivered by the other party.
· He has refused to carry out the contract.
· He has prevented the other party from doing or delivering what the other party must do or deliver according to the contract.
· He has delivered or done what he promised to do in terms of the contract but his performance is defective and is completely useless or only of partial use to the other party.
· He has, in fact prevented himself from being able to perform in terms of the contract.
· Where a party to a contract has breached the agreement, the innocent party should consult an attorney who will institute an action if necessary.
Some specific examples of contracts
Contract of sale
What may the purchaser do if he buys something that has a hidden fault?
The law states that the seller is responsible or liable for and hidden or latent faults that exist in the article bought if they were present at the time of sale. Purchasers should beware of buying something that is sold "voetstoots" or "as is" or "as it stands" because in selling this way the seller has excluded his responsibility or liability for any hidden faults.
What is a warranty or guarantee and how does it affects the buyer?
This is usually a statement made about a product by the seller which he promises to make good. For example, the seller may warrant that a particular television set he is selling will not break down in four years. If it does, then the seller will not break down in four years. If it does, then the seller must make good his promise and repair the unit at no extra charge. Purchasers should beware of guarantees that obsolve the seller from liability for hidden defects in the article bought in exchange for relatively little protection for the buyer. Remember that not all or any representations made by a seller are guarantees. Therefore, ask the seller exactly what he means by a certain statement that relates to the product.
Credit agreements
What is a credit agreement?
Credit agreements are contracts in terms of which articles are sold or services rendered in return for money paid over a specific period of time. The most common form is where the buyer has the article bought in his possession, but the seller remains the owner thereof until the purchaser has paid the last installment. These agreements used to be known as "hire purchase agreements" but they are now called "installment sales agreements". These agreements are specifically regulated by law and the following are a few prescribed formalities:
· The agreement must be in writing and signed by both the seller and the buyer.
· If the buyer fails to keep up the installments he must be warned in writing and if the buyer persists in not paying, the seller may take him to court and obtain a court order to repossess the article.
· It is important to remember that the seller may only repossess the article with the consent of the buyer or after obtaining a court order.
What about contracts concluded with door to door salesmen?
Credit agreements are very often concluded in this way. The law prescribes however, that the purchaser has a "cooling off" period of five days from when the agreement is concluded to return the article and cancel the agreement. The contract must, however, be concluded at the purchaser's home or away from the seller's business for the "cooling off" right to apply.
These are only some guidelines relating to contracts. Remember that where a contract may have grave financial or other implications and you are uncertain as to your rights and obligations, you should seek legal advice before signing anything
