What is a contract?
- A contract is a verbal or written agreement between two consenting parties who
both have the legal capacity to conclude the agreement. - The agreement must be legally executable (not contain any illegal content that
cannot be executed by both parties due to legislative restrictions). - Its purpose is to give rise to a binding legal commitment by both parties in which
both parties have rights and obligations. - A contract is therefore an agreement entered into by specified parties with the
specific intent to create obligations which are binding and as a result thereof,
legally enforceable.
What are the requirements for a valid contract?
- CONSENSUS (both parties must agree to the terms of the agreement)
- CAPACITY TO CONTRACT (the parties must be legally able to contract. For
example — minors, unrehabilitated insolvents and mentally ill individuals are
not allowed to contract) - LEGALLY EXECUTABLE (the contract may not be contrary to any common law
principle, legislation or the morals of society) - PHYSICALLY EXECUTABLE (the performance or object of performance must
be determined or determinable and must at the time of under signing of the
agreement be objectively possible) - FORMALITIES (must comply with statutory and other formalities)
Explain the parties within a contract
- Always two or more parties to a contract.
- Who consent to the terms thereof (for example: A cannot force B to sign the
contract) - Both have rights and responsibilities (to pay or render a service/receive goods
or services) - Both parties need to have the capacity and authority to contract.
- Two types of persons who can contract:
(a) Natural Persons
(b) Juristic Persons
What are the person types?
- Natural Persons
2. Juristic Persons
What are natural persons?
Are persons over the age of 18, who are NOT unrehabilitated insolvents or mentally
incapable of contracting;
What are juristic persons?
(a) Are for example: Companies — PTY (LTD) OR close corporations – CC OR
Statutory Entities such as the SABC OR Clubs and Churches.
(b) These entities cannot contract by themselves and are represented by
specific individuals (natural persons) who have been appointed to contract on
their behalf. These individuals are usually Directors or other individuals who
have been specifically authorised to act on behalf of the company by way of a
resolution, or act as its agent. The agent’s identity must ALWAYS be stated.
What are the three different subcategories of performance?
- to do something;
- to refrain from doing something;
- to give/surrender something
What are the types of contracts?
- Unilateral Contract
2. Reciprocal contract (mutual agreement)
What is a unilateral contract?
An example of a unilateral contract is a donation.
Where one party is obliged to give a sum of money and the other party is entitled
to receive said sum.
What is a reciprocal ontract?
(a) Is an agreement where both parties have rights and obligations toward
one another. (bilateral/multilateral agreement)
(b) Both parties must give a certain performance and is entitled to receive a
certain performance;
(c) Example: A decides to sell his time machine to B. A has an obligation to
hand over the time machine to B and the right to receive money for it. B has
an obligation to pay A for the time machine and the right to receive the time
machine in return for the payment.
What are the three distinct categories of clauses which a contract contains?
- Essentialia — The essential clauses of the agreement that makes it a specific
contract. These are the clauses that define what type of contract it’s going to
be. For example: a rental agreement/hire purchase agreement/service level
agreement/contract of sale etc. - Naturalia –– Are the elements in an agreement that automatically governs the
legality of the agreement. For example: legislation or the common law. The
common law principle of a guarantee against hidden defects is an example of
thereof. - Incedentalia — Are clauses that can be added specifically by agreement
between the parties and encompasses the rest of the contractual terms. For
example: a “Voetstoots” clause – [discussed in class]
What are void contracts?
Void contracts are contracts where one or more of the requirements for a valid
contract are missing.
For example: If one of the parties is not allowed to contract due
to common law or legislative restrictions (minors, unrehabilitated insolvents, mentally
incapable)
What are voidable contracts?
Voidable contracts Are contracts where an agreement was concluded between the
parties, but a material deficiency was present at the time when the contract was
concluded.
For Example:
➢ A threatens B that if he does not sign the agreement, A will scratch B’s new
Mercedes Benz.
Therefore, an agreement was concluded, but one of the parties was forced to sign the
agreement.
➢ OR if A thought bona fide that he was contracting with B, but he was in fact
contracting with C, then the agreement is voidable.
Describe why time and place of contracting is of utmost importance:
It is of the utmost importance to always indicate where and when a contract was
concluded between parties.
WHERE – the place where is always relevant, as it determines in which court’s
jurisdictional area it was signed. If a party is in breach of that contract the
disadvantaged party can approach the court where the contract was signed to exercise
its remedies.
WHEN – is paramount, as it determines at what time the parties’ rights and obligations
came into effect.
What is a commercial contract?
A commercial contract in itself is relevant to the world of business transactions and
professional relationships.
Which principles should a commercial agreement take into account?
- Risk Management
- Tax efficiency
- Business Practice
- Trade Usages
Which contracts are generally considered engineering contracts?
- Service – where the Engineer offers specific knowledge as the “product” he/she
sells; - Products – where the engineer works for a company that offers certain products
or specified systems; - When these products, services or a combination of the above are offered to
another party, a contract is usually concluded between the aforesaid. Preferably
any and all contracts should be reduced to writing, to ensure that both parties
enjoy the appropriate protection in the event of breach. A verbal contract is
extremely difficult to prove, unless the circumstances surrounding the
agreement serve as irrefutable evidence of the agreement itself, as well as the
terms thereof.
How is the content of a contract determines?
By law, commercial reality, practical considerations and the circumstances of each individual case.
Can contracts be used for multiple different agreements?
Yes, contracts can be used as templates for numerous transactions. However, every transaction is in itself
unique and should be approached with the utmost diligence to avoid negligence
and subsequent fault or possible liability
What are the guidelines for the drafting of contracts?
- Establish what your requirements are and do proper research;
- Provide for any eventuality that might become a potential dispute in the future;
- Consider inserting a clause for arbitration (dispute resolution);
- Keep the language simple and avoid ambiguous or vague terminology that can
later prove to be problematic; - Ensure that the object of performance and the parties are properly described to
avoid confusion; - Ensure that the agreement complies with all regulatory legislature and rules of
Engineering practice; - Prepare a first draft and have it checked by a partner, colleague or attorney for
advice.
What are common clauses also known as?
“Boiler Plate” Clauses
Describe why common clauses are used?
It is common in practice to include in any agreement certain clauses of a general
nature which facilitates the enforcement of the contract
Describe the “Whole Agreement” clause:
- This clause is standard in most agreements. Its purpose is to ensure that
neither party can enforce external rights or remedies that are not included in
that specific agreement. In short, it reads as follows: - This Document contains the whole agreement between the parties. No party
will have any right or remedy arising from any undertaking, warranty or
representation which is not included in this agreement.
Describe a variation clause:
- The variation clause serves as a security mechanism and prevents either party
from altering the terms of the agreement. A normal variation clause reads as
follows: - “This agreement or any part thereof can only be waived, varied, added to or
cancelled by way of a further written agreement by both parties and signed by
both parties”
