The Art of Contracting

The law of contracts forms part of the law of obligations. An obligation is a juristic bond in terms of which the party or parties on one side have a right to performance (“rights”) and the party or parties on the other side have a duty to render that performance (“obligations”).

A contract may be said to be concluded upon the meeting of the minds between parties (consensus) pertaining to rights and obligations, subject of course, to such parties having the capacity to act, the performance envisaged in the contract being possible, the performance and the object of the contract is lawful, the legal requirements for such contract having been complied with and the contents of consequences of the contract must be ascertained or be ascertainable.

It may be said that a contract needs to be in writing, for it to be binding and legal, but that may not always be the case. However there are a few contractual agreements that need to be in writing, such as agreements for the selling of immovable property. But in general a contract or agreement between parties only needs to be in writing if they have agreed upon it, or if required by law.

When drafting a contract, the drafter needs to keep a few things in mind. Firstly he must make sure that the contract is practical and understandable to all parties relevant to the agreement. Secondly he must keep in mind his clients business goal and wider commercial goal rather than just completing the transaction.

A practical contract which is understandable and logical is a key ingredient to closing the deal. Making a contract practical and logical you make it easier for your client and takes all the unnecessary complications out of the way. Rather use practical and logical terms instead of difficult law terms. Construct an agreement that is simple and straight to the point.

Secondly the drafter needs to keep in mind his clients business goal and wider commercial goal. Your client may be selling his company and this may have an effect on his BEE status on the remainder of his business. This may cause real serious complications when not considered in the drafting of the contract. Thus it is better to take all these things into account rather than just wanting to close the deal and make money.

Part of things that needs be consider are the impact of the transaction on your businesses’ BEE status. The reason being is that in modern South-Africa these three concepts have become a part of our daily existence. BEE has had a bigger effect than first thought. Because BEE became such a big part of the economy in SA, it automatically became part of the law of contract. For instance when you start a company certain steps needs to be complied with to be BEE compliant, therefore a different type of contract needs to be drafted.

Secondly Tax needs to be considered. You have to pay tax on nearly everything in life, but can in some ways be exempted from tax. Thus your contract needs to be drafted in such a manner that exempts you from tax. The last thing that needs to be kept in mind is FICA legislation. This legislation is implemented to prevent money laundering, and therefore is applicable to banks and credit providers, and therefore has a big, thus the reason it changes the drafting of the relevant contracts.

Part from the general concepts that is needed for a contract to be law binding, a drafter needs to call it right the first time. Meaning that the drafter needs to consider all relevant factors to the contract, and act accordingly. It is crucial to act right the first time. By acting right the first time you save yourself and your client a lot of unnecessary complications, therefore your knowledge about contracts needs to be of the utmost gratitude that allows you to call it right the first time.

11 July 2010