A legal contract

A contract can be very helpful for providing legal enforcement of a transaction or agreement such as the sale of a vehicle between you and a friend.

What exactly is a contract?

Contracts are legally binding agreements existing between two or more parties. A party can be made up of individuals or organisations/businesses. Contracts can be oral or written and must meet four formal requirements to ensure that they are valid and enforceable.

The four requirements of a legally binding agreement

• An Agreement is when an offer is made and accepted by all parties involved.
• Consideration is something of value that both parties agree to exchange. It comes in many forms such as goods or services – anything with value.
• The intention is crucial – both parties must have the intention to create a legally binding agreement.
• The certainty of terms is the subject of the agreement. This includes the key promises about the subject e.g. the timing, which all parties must be specific and clear on.

The contract

Contracts have a section known as a preamble, found at the beginning, which outlines the entire transaction. The preamble lists the details of the agreement; the who, what, when and how much. You must have all the facts before signing a contract are you signing a contract with a person or a company. In the case of a dispute, you must know who you would need to address the dispute with to enforce the contract. Some important questions to ask are whether their operational details are laid out accurately in the agreement. If not, what would a breach of contract look like?

Signing the contract

To make sure there are no problems if the need arises to enforce the contract, make sure that the authorised persons sign it. All parties must all be of legal age and competent, meaning that they have the maturity and mental ability to enter into the agreement.

Who can enforce a contract?

Privity, a common law principle, of the contract states that a contract cannot be enforced by anyone who is not a party to the contract. Only those party to the agreement can enforce their rights or claim damages. It would be up to one of the parties to enforce the contract if a third party is involved and benefiting from the contract.

Five contractual disputes

There are five types of violations that are considered a breach of contract:

• Positive malperformance - If the party did not perform as contracted.
• Mora Creditoris - If the creditor does not co-operate, hindering the debtor's ability to fulfil their contractual obligation.
• Mora Debitoris - If the debtor fails to make the timeous performance of a positive obligation.
• Repudiation - If by words or by action, it is demonstrated that a party has an unequivocal, unlawful excuse to no longer be bound to the contract.
• Prevention of performance - If by the fault of one of the parties, the other party can no longer fulfil their legal obligations.

COVID-19: Force Majeure

Force majeure clauses cover cases where a party deems it impossible to fulfil their legal obligations as stipulated in a contract. The provision of including a force majeure clause in an agreement is made by contracting parties and this safeguards them from the risks presented by certain economic, political or natural disasters such as the COVID-19 pandemic. If a party seeks to enforce this clause in order to avoid performing its contractual obligations as a result of the COVID-19 pandemic, they would need to include words that clearly describe the situation.

Dealing with contractual disputes

The consequences of breaching a contract often come with damages. For example, if one party breaches their side of the agreement, a court can force the party to compensate the other party for damages suffered due to the breach. It is also possible for a court to order specific performance, which is the instruction to follow what is agreed upon in the contract.

Don't sign a contract without doing your homework. Document all contract negotiations in writing throughout the process; this includes history, pricing and terms and conditions. Always clarify any words/ jargon which you do not understand to prevent any possible misunderstandings. If you foresee any problems, do not enter into any contract – they are not to be entered into lightly.

With Legal&Tax you're not alone

Your Legal&Tax lawyer can advise and assist you on contractual matters. Let us peruse your legal agreements before you sign on the dotted line.

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Disclaimer: The content of this article was correct at the time of publishing, but the legislation or underlying information forming the basis of this article may have changed. You should always speak to a qualified Legal&Tax advisor before making any decisions.