Formation of valid contracts in South Africa

Introduction

People from all walks of life enter into contracts on a daily basis in transactions ranging from paying for a bus ticket, to multibillion rand business takeover transactions. This is particularly so for entrepreneurs seeking to close deals from across the globe. Given the important role contracts play in everyday transactions, it is important to create some a degree of certainty that parties can rely on their contracts for the enforcement of their rights in terms of such contracts. The Law of Contracts in South Africa sets a legal framework within which parties can enter into agreements with the certainty that those agreements will be upheld and enforced by the courts. The law of contract thus reinforces economic dealings in South Africa by regulating agreements between parties.

What is a contract

A contract can be defined as an agreement between two or more parties who have the mutual intention of creating binding rights and obligation among themselves. The then CJ Innes in Wells v South African Alumenite Co 1927 AD 69 at 73 said this about contracts: 

“If there is one thing which, more than another, public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred and enforced by courts of justice.”

The quote applies equally to women. The law of contract thus affords parties freedom of choice to regulate their own relationships by entering into valid contracts. The next question relates to the formation of contracts.

Contract formation - What are the requirements for a valid contract?

In order for a contract to be considered valid and binding in South Africa, the following six requirements must be met, namely:

1. Consensus 

The parties must agree on all the rights and obligations created by the terms of the contract. These rights and obligations must be communicated in the form of an offer and acceptance. The offer must be made with the intention to be bound by the acceptance. Similarly, the acceptance must be made with the intention to enter into a legally binding agreement.

2. Capacity

Capacity refers to the parties’ ability to understand the nature and effect of the contract. Generally, parties who are 18 years old or above are considered to have the capacity to contract.

3. Formalities

Formalities can either be prescribed by law or stipulated by the parties themselves. A common stipulation by the parties is that the contract must be in writing and undersigned by both parties for it to be enforceable. However, there is no general requirement in South Africa that a contract must be in writing. Oral contracts are enforceable provided the requirements for the formation of a valid contract have been complied with. From a practical point of view, it is easier to prove the existence of, and the terms of, a written contract. It is advisable to reduce contracts to witting to avoid “he said, she said” situations. Some contracts are required by statute to be in writing. The Alienation of Land Act 68 of 1961 requires all contracts for the sale, donation and exchange of land to be in writing.

4. Legality

In order for a contract to be valid, it must operate within the confines of the law. A contract that contravenes a statute, the common law or public policy, will be considered illegal and unenforceable.

5. Possibility of performance

The rights and obligations created by the contract must be possible to perform.

6. Certainty

There must be no ambiguity in relation to the material terms of the contract so as to ensure that each of the parties know, with certainty, what their rights and obligations are.

Conclusion

Contract law is a vast and complex legal minefield. Without expert advise, you may very quickly find yourself in an incurable position. At Mota Africa, we understand the value of expert legal counsel and pride ourselves on providing commercially smart legal advice. We aim to simplify the often-complex nature of contact law and take the time to get to know our clients’ businesses to understand their challenges, needs, goals and reasons for entering into any particular contract.

For all your contract, corporate and commercial law needs, consult our team of experts prior to entering into any commitments.

Thabo Mohale

by :

Thabo Mohale
Legal Practitioner at Mota Africa

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