Contract law in South Africa is aimed at guiding against the misuse or misapplication of the formation of a binding contract.
It also aimed at defining what a contract really is and based on this definition will every contract made be duly recognized by the law.
Contract law in South Africa is one of the developments in the economic and legal reform of the Federal Government of South Africa aimed at protecting the rights of the parties involved in business transactions.
Several other reforms such as the Law of Minerals and Mining Act. 2007 saw the regulator of the sector gaining powers to grant licenses, secure the tenure of licenses, and perform other duties related to minerals and mining matters in South Africa.
These reforms including the establishment of the South Africa Intellectual Property Commission (NIPCOM), to improve the efficiency in the management and administration of property matters in South Africa, have led to significant improvements in the protection of the rights of parties involved in the business transactions in the case of breach, misinterpretation or unlawful disassociation from a contract.
This article provides a complete guide on contract law in South Africa. It is meant to inform you of the legal principles guiding contracts and the entity of contract law in South Africa.
What is Contract in South Africa?
A contract is an agreement between two or more people, companies or organizations which creates obligations that are enforceable by the law. According to this definition, a contract can only exist when there is an agreement between both parties.
The law will not recognize mere agreements like a gratuitous promise as a contract and will not enforce such a contract when it is breached by one of the parties.
Classification of Contracts in South Africa
Contracts are classified based on their uses and the parties involved. It is important to take note of this classification to ensure you take the right step when agreeing to a contract with any party.
Simple and Formal Contract
This is mostly done by individuals and it involves written documents signed by both parties and sealed. Examples of such contracts would be a party giving possession of its valuables or equipment to another party either on the agreement of instalment payment or for a fixed period of time.
Implied or Express Contract
It is not enforceable by law as it does not conform to the definition and the format that binds contracts under the contract law in South Africa. Such a contract involves an agreement by the parties either in writing or oral agreement.
This involves an exchange of promises.
It consists of the actual performance of an act in return for a promise.
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Elements of a Valid Contract in South Africa
A contract can only be considered valid and enforceable by law if it follows the formats stated below.
An offer is the expression of a person’s readiness to enter into a contract on certain terms. The offer must be made with the intention which when accepted becomes binding on the parties.
An offer could be made expressly or implied. It could also be made to a particular person or the public, but this will depend on the type of contract that is to be agreed upon.
An offer differs from an invitation to treat as it is a clear and final declaration of readiness of a contracting party’s intention to enter into an agreement based on certain terms. An invitation to treat, on the other hand, is not considered “an offer” but simply an offer to negotiate.
The party making the offer is termed the “offeror” while the party to whom the offer is made is termed “the offeree”.
The contract is said to come into existence when the acceptance of the offer has been underscored. Acceptance is the final and unequivocal expression of the offeree in agreement to the terms of the offer as conveyed by the offeror.
For acceptance of an offer to be considered, it must be indicated by the offeree either in words, writing or conduct. Also, the mere intention to accept an offer does not constitute an acceptance.
The requirement of the type of communication acceptable as acceptance of an offer depends on the type of contract. In a bilateral contract, the actual communication of acceptance is necessary if the offer expressly requires it.
If there is no consideration during the process of the contract, the contract is considered invalid even though there is an offer and there is an acceptance. Consideration is forbearance or benefit arising from an offer and an acceptance.
Intention to Create Legal Relations
The intention of creating legal relations is the binding seal on the contract that completely renders it valid and enforceable in a court of law. This is necessary to ensure that if the agreement is broken or breached, the party offended would be remedied in damages or by specific performance of the contract.
Remedies for Breach of Contract in South African Law
A valid contract is enforceable in a court of law if there is a breach of contract by either of the parties involved. However, a contract can be discharged;
- If the purpose of the contract has been fulfilled
- By mutual rescission of the contract
- By renunciation
- By an amendment to existing laws originally binding the contract which make the purpose of the contract illegal
In Law, there are two most common remedies for breach of contract which are:
- Remedies for damages like compensatory damages, exemplary damages, punitive damages etc.
- In cases where monetary compensation would be inadequate or inappropriate, specific performance of the contract could be awarded to the offended party.
Contract law only binds on valid contracts established based on the format stated by the South Africa legal system. Such contracts are enforceable by the law and will only be considered if they adhere strictly to the format stated above. It is important to be conversant with the requirements of contract law in South Africa before expressing the intention of agreeing to any contract.