All business people conclude contracts, whether in terms of a formal written contract or a “gentleman’s handshake”. Business people often also wish to cancel contracts when the other party acts in breach of its contractual obligations. It is important as a business person to know what constitutes a contract. A contract is a legal binding agreement which is entered voluntarily between two or more parties. In Christie RH and Bradfield GB, the law of Contract South Africa 6th edition, states that a contract must not be in contravention with the law. A contract can be written or oral. An oral contract is a verbal agreement made out loud in conversation between two or more parties. In some instances, an oral contract may suffice but in certain instances it is advisable that the contract be written into a tangible document so as to ensure that both parties are aware and in agreement of the terms and conditions of the contract.
The validity of the contract is dependent on two elements which are “offer” and “acceptance”. The offeror makes the offer and the person to whom the offer is made accepts it and this constitutes a contract between the parties. A person cannot contract with himself. A business person is bound by the terms of a contract that they sign.
To constitute an offer, the offeror must intend to create a legal obligation and this can be shown by conduct. For example, when one party signs the contract and sends it to the other party for signature. No contract comes into being when an offer is made jokingly, or under any other circumstance that would cause a reasonable person to believe there was no intent to enter into a binding agreement.
In order for a contract to be valid it must meet the following requirements,
There must be consensus (meeting of the minds) among the parties to the agreement.
The parties must have the necessary legal capacity to contract. The parties must be above the age of 18 years and eligible to enter into a contract.
The agreement must be lawful. This meaning an agreement to commit a crime will not be valid.
Both parties must be able to perform in terms of the contract. In Bhana D, Bonthuys E and Nortje M in Students Guide to the Law of Contract 3rd edition it is emphasized that at the conclusion of the contract both parties must be able to render performance.
A contract can be terminated in the following ways,
By performance of the parties in terms of the agreement.
By notice duly given to either party of the termination.
By death of either party.
By mutual agreement
By impossibility of performance for instance where one of the parties is no longer able to fulfill the terms of the contract because they are incapacitated.
Instances of misrepresentation for example where one of the parties who is a minor misrepresents to the other party that they are above the age of 18 and are eligible to enter into the contract.
Breach of contract where one party fails to perform and the other party can sue for failure to perform.
By prior agreement in instances where there is a clause for the termination of the contract which both parties agree to.
By lapse of time if the contract has to be executed within a set time and that time has lapsed.
If one party dies.
The next time you enter into a contract, it is crucial that you pay attention to the provisions of that contract and ensure that the language and format used truly represents your intention and that you fully understand the terms of that contract. It is always advisable to have an Attorney advise you before entering into a contract.