ENGINEERING
PROFESSIONALISM
CONTRACT LAW
Contract Law
PART I:
WHAT IS A CONTRACT?
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Contract Law
1. Introduction
What is a contract?
1. A contract is a verbal or written agreement between two or more consenting parties who both have
the legal capacity to conclude the agreement.
a. The agreement must be legally executable (not contain any illegal content that cannot be
executed by both parties due to legislative restrictions).
b. Its purpose is to give rise to a binding legal commitment by both parties in which both parties
have rights and obligations.
2. A contract is therefore an agreement entered into by specified parties with the specific intent to
create obligations which are binding and as a result thereof, legally enforceable.
3. It is of the utmost importance to always indicate where and when a contract was concluded between
parties:
a. WHERE – the place where is always relevant, as it determines in which court’s jurisdictional
area it was signed. If a party is in breach of that contract the disadvantaged party can approach
the court where the contract was signed to exercise its remedies.
b. WHEN – is paramount, as it determines at what time the parties’ rights and obligations came
into effect.
4. These obligations [the performance] can be can be divided into three (3) different subcategories, namely:
a. To do something
b. To refrain from doing something;
c. To give/surrender something.
Characteristics of contracts
Warranty
There must be at least two parties
to an agreement
Bonae fidei
Consensual
WHAT ARE THE
CHARACTERISTIC FEATURES
Reciprocity
Promises or undertakings
on one or both sides.
OF A CONTRACT?
Consideration =
Freedom of contract =
Performance –
Something of value must be given or
Parties can agree to anything that is
Immediately or at a future
promised in return
possible and lawful.
date
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Contract Law
2. Requirements for a valid contract
REQUIREMENTS OF A VALID CONTRACT
CAPACITY
FORMALITIES
The parties must
Where the
have the necessary
agreement is
capacity to
required,
contract.
unusually, to be in
CONSENSUS
The minds of the
parties must meet
(or at least appear
to meet) on all
PHYSICALLY
EXECUTABLE
The agreement
must be lawful –
a certain form (for
material aspects of
their agreement.
LEGALITY
Person may either
example, in writing
have (i) no capacity
and signed), these
(ii) limited capacity
formalities must be
(iii) full capacity.
observed.
The obligations
that is, not
undertaken must be
prohibited by
(i) determinable and
statute or
(ii) capable of
common law.
performance
when the agreement
is entered into
VOID CONTRACT
VOID CONTRACTS
•
VOIDABLE CONTRACTS
Void contracts are –
▪
•
Contracts where one or more of the
Voidable contracts are –
▪
requirements for a valid contract are
concluded between the parties, but a
missing.
•
Contracts where an agreement was
material deficiency was present at the
For example: If one of the parties is not allowed to
time when the contract was
contract due to common law or legislative
concluded.
restrictions (minors, unrehabilitated insolvents,
•
mentally incapable)
The material deficiency may be based on –
▪
Misrepresentation
▪
Duress
▪
Undue Influence
▪
Economic Bribery
▪
Unconscionable Conduct – Sec 40 of
the Consumer Protection Act
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Contract Law
CONTENT OF A CONTRACT
ESSENTIALIA
NATURALIA
INCIDENTALIA
Those distinctive terms used to
Terms automatically included in any
The terms other than the
identify or classify a contract as one
contract belonging to one of the classes
naturalia and essentialia.
of the specific contracts recognised
of
They are the additional terms
by our common law.
recognised by our law.
agreed upon by the parties that
The essentialia of a contract of sale:
They can therefore be said to be implied
supplement or modify the
Are terms stipulating that property
by law (ex lege).
rights and duties incorporated
specific
contracts
traditionally
must be delivered and that the
by law into the particular
purchase price must be paid.
contract in question – namely,
the naturalia.
3. Commercial contracts
A commercial contract in itself is relevant to the world of business transactions and professional relationships.
Commercial agreements need to take into account the following principles:
1. Risk Management
2. Tax efficiency
3. Business Practice
4. Trade Usages
4. Commercial contracts and contracts for engineering
Engineers in general offer one or more of the following:
1. Service – where the Engineer offers specific knowledge as the “product” he/she sells;
2. Products – where the engineer works for a company that offers certain products or specified systems;
3. When these products, services or a combination of the above are offered to another party, a contract is
usually concluded between the aforesaid. Preferably any and all contracts should be reduced to writing,
to ensure that both parties enjoy the appropriate protection in the event of breach. A verbal contract is
extremely difficult to prove, unless the circumstances surrounding the agreement serve as irrefutable
evidence of the agreement itself, as well as the terms thereof.
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Contract Law
PART II:
HOW IS CONTRACT A
FORMED?
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Contract Law
5. Basic principles
5.1 The parties
The parties
1. Always two or more parties to a contract.
a. Who consent to the terms thereof (for example: X cannot force Y to sign the contract)
b. Both have rights and responsibilities (to pay or render a service/receive goods or services)
c. Both parties need to have the capacity and authority to contract.
d. Two types of persons who can contract:
i. Natural Persons
ii. Juristic Persons
PERSON TYPES
NATURAL PERSONS
•
JURISTIC PERSONS
Persons with FULL CAPACITY
▪
•
Is conferred on those the law considers
and are represented by specific individuals
sane, sober or of an age where they can
(natural persons) who have been appointed to
understand their actions and the
contract on their behalf.
adjoining consequences.
•
•
These entities cannot contract by themselves
•
These individuals are usually Directors or other
Persons with NO CAPACITY: Persons whose
individuals who have been specifically
mental faculties are so undeveloped or impaired
authorised to act on behalf of the company by
that they cannot appreciate the nature and
way of a resolution, or act as its agent. The
consequences of their acts
agent’s identity must ALWAYS be stated.
▪
Infants [Persons 1-6 Yrs old]
▪
Severely intoxicated persons
(LTD) OR close corporations – CC OR
▪
Persons declared Mentally Insane by
Statutory Entities such as the SABC
the law
OR Clubs and Churches.
▪
Persons with LIMITED CAPACITY: Persons who
require the assistance or consent of another
person to conclude a contract.
▪
Minors [Persons 7-17 Yrs old]
▪
Married Persons
▪
Sequestrated Insolvent
▪
Prodigal
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Are for example: Companies — PTY
Contract Law
6. Professionalism
1. As a professional individual, an engineer will always be subject to certain rules, regulations and codes of
conduct. It is expected of you to uphold the ethical standards of the profession, not only for yourself, but
to ensure that the profession itself is continuously regarded as one that promotes and upholds diligence.
2. When drafting a contract, always keep in mind that you are compelled to adhere to certain ethical
standards. Here are a few questions to ask yourself before signing an agreement:
a. Can you properly perform/deliver in terms of the agreement? (Competency)
b. Is the terms of the agreement in accordance with my regulating body’s code of conduct?
7. Establishment of the contractual relationship
There are numerous ways to enter into a bilateral or multilateral agreement:
1. Government or private company tender
2. Requests for Proposal.
3. Request for quote.
4. Public media &
5. Registered/Pre-approved suppliers.
After the offer has been accepted, a contract is concluded between the parties, subject to the parties’ specific
requirements and the offer that was tendered.
REQUEST FOR PROPOSAL An offer made by a company to business suppliers in order for them to submit their
business proposals, with the express goal to obtain a specified service or commodity.
REQUEST FOR QUOTATION The main purpose of an RFQ is to invite bidders to enter their bids on specified
products and/or services. A request for quotation is therefore also in some instances referred to as an invitation
for bid.
REQUEST FOR TENDER A RFT is a formal invitation to suppliers to bid to supply certain services or products.
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Contract Law
8. Drafting a contract
1. As qualified Engineers, you might be tasked with drafting a contract on behalf of your companies/firms or
as an individual. In most instances an Attorney is appointed to tend to the necessary, but it is always
important to know how to draft and properly peruse an agreement, so that you may be able identify
discrepancies in the agreement.
2. The content of a contract is determined by law, commercial reality, practical considerations and the
circumstances of each individual case. Contracts are not always different and might in some instances
use one contract as a template for numerous transactions. However, every transaction is in itself unique
and should be approached with the utmost diligence to avoid negligence and subsequent fault or possible
liability.
3. Look at possibilities like FIDIC, NEC(3) or JBC if appropriate.
9. Guidelines for drafting of contracts
Guidelines for drafting a contract:
1. Establish what your requirements are and do proper research;
2. Provide for any eventuality that might become a potential dispute in the future;
3. Consider inserting a clause for arbitration (dispute resolution);
4. Keep the language simple and avoid ambiguous or vague terminology that can later prove to be
problematic;
5. Ensure that the object of performance and the parties are properly described to avoid confusion;
6. Ensure that the agreement complies with all regulatory legislature and rules of Engineering practice;
7. Prepare a first draft and have it checked by a partner, colleague or attorney for advice.
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Contract Law
10. Contract clauses
10.1 Common clauses or so-called “boiler plate” clauses
It is common in practice to include in any agreement certain clauses of a general nature which facilitates the
enforcement of the contract.
10.2 The “Whole Agreement” clause
1. This clause is standard in most agreements. Its purpose is to ensure that neither party can enforce
external rights or remedies that are not included in that specific agreement. In short, it reads as follows:
2. This Document contains the whole agreement between the parties. No party will have any right or remedy
arising from any undertaking, warranty or representation which is not included in this agreement.
10.3 Variation clause
1. The variation clause serves as a security mechanism and prevents either party from altering the terms of
the agreement. A normal variation clause reads as follows:
2. “This agreement or any part thereof can only be waived, varied, added to or cancelled by way of a further
written agreement by both parties and signed by both parties”
10.4 Jurisdiction of the magistrates’ court
1. Both parties can consent to the jurisdiction of the magistrates’ court, as these courts are usually less
expensive to institute litigation in. An example could read as follows:
2. “Each party to this agreement consents to the jurisdiction of the Magistrates’ Court in terms of Section 45
of the Magistrates’ Court Act of 1944 in respect of any litigation proceedings pursuant to this agreement”
10.5 Addresses for service
To simplify the exchange of important documentation and/or service of these documents on the other party. The
parties can determine the manner of exchange, but in most cases every possible form of communication medium
is inserted in this clause, including mail address, fax and e-mail. Faxes and emails are regulated by the Electronic
Communications and Transactions Act to establish precisely when a communique was sent and/or received by
either party.
10.6 Costs
This clause is normally included in a contract to formally address if one or all of the parties will be responsible for
the costs involved with the drafting of the contract. It is usually included when corporate attorneys are employed
to draft the agreement. Some contracts require a lot of research and negotiation and can therefore incur very
expensive legal fees.
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Contract Law
10.7 Alternative dispute resolution
The purpose of an ADR clause is to avoid costly litigation procedures, by means of negotiation/mediation or
arbitration. [This clause will be discussed in detail during the lecture]
10.8 Breach
It is very important to include a breach clause in every contract. It serves as the paramount protective mechanism
in each agreement.
10.9 Example:
“In the event of either party being in breach of the agreement and failing to remedy such breach within a period of
ten days after receiving notice of said breach to be remedied, the party aggrieved thereby shall be entitled, without
prejudice to:
1. Claim specific performance of the terms of this agreement as well as damages it has suffered as a result
of the breach
2. Cancel this agreement and claim damages
3. Keep this agreement in force and claim damages.”
10.10 Governing law
When drafting an agreement, one must specify which country’s laws will be applied to govern the agreement. For
example: “The agreement will be subject to and governed by the laws and statutes of the Republic of South Africa”.
The above clauses are just examples of boiler plate clauses and are by no means a closed list.
10.11 Other essential clauses
Other essential clauses [will be discussed during the lecture]:
1. Definitions
2. Interpretation
3. Penalty
4. Obligations/duties of parties
5. Insurance
6. Commencement
7. Force Majeure
8. Subcontracting
9. Remuneration
10. Duration of agreement and termination date
11. Requirements of third parties (certificates from municipalities etc.)
12. Non-competition —NB!!!! Discussion in class
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Contract Law
PART III:
HOW IS A CONTRACT
TERMINATED?
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Contract Law
11. Breach of Contract
SPECIFIC FORMS OF BREACH RECOGNISED
MORA DEBITORIS
POSITIVE
PREVENTION OF
REPUDIATION
MORA CREDITORIS
PERFORMANCE
MALPERFORMANCE
The debtor
The creditor
Either party
Either party
culpably fails to
The debtor performs
culpably fails to
indicates an
renders
make timeous
in a defective or
cooperate
unequivocal
performance of the
performance of his
incomplete manner
timeously with the
intention not to
contract
debtor so that the
honour the
impossible
Relates to the
latter may perform
agreement
Relates to the time
content of the
his or her
of the performance.
performance made.
obligations
or her obligations
12. Remedies for breach of contract
DIFFERENT TYPES OF REMEDIES
REMEDIES AIMED AT KEEPING THE
REMEDIES AIMED AT CANCELLING
REMEDIES AIMED AT COMPENSATING
CONTRACT ALIVE
THE AGREEMENT
THE INNOCENT PARTY FOR LOSS OR
HARM CAUSED BY THE BREACH
ADIMPLETI
In certain circumstances, the innocent
CONTRACTUS: The innocent party is entitled
party is entitled to the remedy of
These remedies can be claimed in
to refuse to render his or her own performance
cancellation, in terms of which the
addition
until such time as the breaching party has
agreement is summarily terminated.
mentioned above and include:
THE
EXCEPTIO
NON
1.
performed in full.
CLAIM FOR SPECIFIC PERFORMANCE:
to
any
of
the
remedies
A claim for contractual
damages or delictual damages
The innocent party asks for a court order
2.
forcing the breaching party to render his or her
A claim for interest on amounts
owing
performance.
AN INTERDICT: The innocent party asks the
court for an order to prevent a breach of
contract that has not yet happened, but which
is threatening or imminent.
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Contract Law
13. Termination of the agreement
There are numerous ways in which a contract can be terminated. To name but a few:
1. COMPLIANCE – where the parties have satisfied the requirements and provisions of the agreement and
both parties have performed fully;
2. NEW CONTRACT – The parties can agree that a new agreement be concluded between them that
incorporates the previous contract, or disregards it in total;
3. DEBT COMPARISON – where the parties owe one another a certain amount of money, they can write of
their mutual debt;
4. FORCE MAJEURE — So called “acts of god”
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