To be legally binding, a contract needs two essential components:
- agreement, and
Within the agreement and consideration lies an assortment of provisions that add to the legality of a contract. These include the offer, performance, terms, conditions, obligations, payment terms, liability, and default or breach of the contract.
- Agreement component of a contract
The agreement component involves offers, counteroffers, and eventually what contract law calls the “meeting of the minds.” An agreement can be either oral or written, depending upon the contract. If you hire a taxi to drive you to the airport, then it is an oral agreement that you will pay the driver a certain sum when you reach your destination.
However, in South African law, all real estate contracts must be in writing and signed by all parties.
The agreement process involves one party offering terms and conditions that are either accepted or rejected by the other party. If the other party changes any term or condition of the offer, then the offer becomes a counteroffer. At this point, each party negotiates the terms and conditions of the offer until they have a meeting of the minds. This is when an agreement has been met and a contract can be drawn up.
- Consideration component of a contract
For an agreement to be legal and binding, it must have some form of consideration. This means that all parties involved must receive consideration or something of value. Otherwise, it is considered a gift rather than a contract. The promise of a gift is not necessarily binding, depending upon the circumstances. Usually, consideration involves one party giving something such as a product or service, and in exchange, the second party gives some form of monetary compensation.
The consideration component of the contract brings up several other provisions that should be addressed. These provisions include:
- Obligations and Conditions of the Contract
What each party needs to do to fulfill the terms of the contract.
How well each party performs the terms of the contract.
- Payment Terms
A schedule that specifies when all payments are to be made.
Define the liability of each party in terms of the contract.
- Breach of Contract
What will happen should either party fail to fulfill their part of the agreement.
When compiling the agreement and consideration of a contract, the agreement must be clear as to what is specifically expected of each of the contracting parties. An ambiguity or confusion in any part of the contract can lead to problems when trying to enforce the provisions of the contract.