Today it really is not hard to find a ‘plug-n-play’ contract for pretty much any sort of commercial transaction – you can buy them at your closest stationery store! Sometimes companies will hire a lawyer to draft a standard contract for their services and they just fill in the details later. Typical examples of this type of contract that most people would have seen at some point or another are leases and sale agreements used by estate agents. Draft contracts like these with blank spaces for final details are called precedents.
Now please don’t misunderstand, precedents can be great and they have certainly made the law much more accessible. And let’s be real, it’s a monumental waste of time, not to mentioned, an inordinate expense, to start drafting from scratch each time. But if you don’t know anything about the law of contract, precedents can be a very dangerous means of contracting.
Why? Well, precedents typically leave things like the name of one party (e.g. buyer, lessee, borrower), the amount to be charged for the product or service, and even the description of the product or service blank. The precedent treats this information as the final details to be sorted out. So in essence, a blank precedent (i.e. a precedent as you buy it) contains clauses which relate to nobody in particular and regulate the sale / lease / borrowing of no particular item or service for no set amount.
All of these missing bits of information are required before you have a valid contract.
There are 6 general requirements for a valid contract:
| 1. Consensus | There needs to be agreement about who you’re contracting with and what you’re contracting about. |
| 2. Contractual capacity | The parties need to be legally able to enter into the relevant type of contract. |
| 3. Formalities | If legislation or the parties themselves require any ‘boxes to be ticked’ (for example that the agreement must be in writing) before the contract is concluded then this must be done. |
| 4. Legality | The substance of the contract must be legal. |
| 5. Possibility | It must be physically and legally possible to perform in terms of the contract. |
| 6. Certainty | It must be clear who the parties are and what their obligations under the contract are. |
When one considers the general format of precedents, it is clear that until they have been properly completed there is definitely not consensus on who the parties are, often times the required formalities have not been met and it is most definitely not certain who’s who and what their obligations are. ‘
‘So what’s the problem?’, you might say, ‘I just fill in the blanks and we’re sorted.’ Well yes, that’s true – if you fill in the blanks properly.
In order for a contract to be sufficiently certain it has to be perfectly clear who is contracting. For example it is not good enough to say ABC (Pty) Ltd and Eskom enter into a contract. There are 6 Eskom entities, is ABC (Pty) Ltd contract with Eskom Finance Company (Pty) Ltd, Eskom Enterprises SOC Ltd or Eskom Holdings Ltd? As you can see, simply filling a name in the blank does not necessarily mean your contract will be certain enough…
The situation is similar when it comes to the description of a product or service. It is not good enough to say the item being sold is a white polo vivo. Is it a sedan or a hatchback? Is it new or used? Is it a 2018 model or a 2009 model? And on top of that, there must be hundreds of thousands of polo vivos in the country, how do we identify the specific one being sold? Filling in the blanks isn’t quite so straight forward.
What are the consequences of an inadequately filled out precedent? Well, if you haven’t met any one of the 6 general requirements the contract will be void – it’s as if you never concluded the contract. Your beautiful, but incorrectly filled out precedent is nothing more than a waste of paper.
So, if your business relies heavily on precedent type contracts for your regular activities it is a really good idea to ensure that your staff have a solid understanding of the basic principles of contract law.
For more information on contract law or for assistance with contract drafting email info@sdglegal.africa.