The weight of a contract
When it comes to contracts, there is one golden rule: Don’t sign it if you don’t like – or understand - it.
A contract is legally binding, which means if either party does not hold up their end of the agreement, they can be sued in a court of law.
Any person under the age of seven years of age may not be entered into a contract or be considered legally bound to said contract. The age of majority (the age at which one is legally considered an adult who can enter a contract agreement) in Namibia was changed to 18 from 21 in 2019. Between the ages of seven and 18 years, an individual can enter into a contractual agreement with the knowledge and consent of a guardian, who will also be required to sign written agreements.
Furthermore, all parties need to be seen as capable before the law. Individuals who are mentally unfit due to a lack of mental capacity or issues such as mental illness cannot legally be entered into a contract.
According to legal counsel for Power Line Africa Marko Himmel, ensuring you understand certain words and phrases is crucial when entering into a contractual agreement. “It’s all about understanding,” he said.
Requirements of a contract
Due to the varying nature of contracts, it is vital that contracts are defined. Himmel explained that an agreement can be considered a contract if it meets six basic requirements: Consent, capacity, legality, formality, possibility and certainty.
Consent: Sometimes known as ‘a meeting of the minds’, consent refers to the understanding of the terms of the contract, which both parties must agree on.
Capacity: In order for a contract to be established, both parties entering into the agreement must be considered legally capable of partaking in the agreement.
Legality: A contract cannot be in contradiction of the law. Everything stipulated in a contract must be in agreement with the law of the country.
Formalities: All details of a contract must be stipulated. The specific rules and requirements of a contract must be clearly and unambiguously stated.
Possibility: Obligations undertaken by the parties must be capable of being performed when the agreement is entered into.
Certainty: The contract must have definite content that can be enforced.
Types of contracts
Himmel noted that the specifics of a contract are incredibly variable and largely depend on the purpose of the contract; the most common being lease or sale agreements, employment contracts and marriage contracts.
He mentioned three types of contracts: Verbal agreements, written agreements and implied contracts.
Verbal agreements are entered into by conversation only. When two individuals agree verbally on a particular subject, their contract can be perceived as binding. “The problem with verbal contracts is it is hard to prove,” he said.
Written agreements are contracts that are signed on paper. This type of agreements is advised for the more important things in life like the sale of a valuable item or agreements that entail any sort of payment. Himmel advised that both parties entering the agreement sign their initials onto every page of the contract – this is not necessary to make the contract legally binding, but is good practice to make tampering with the document easier to detect.
Implied contracts are entered by action and are the hardest to prove before the law. If two parties have not explicitly agreed on a set of terms, but an action implies that both parties are in agreement and all the requirements of a contract are met by the action, this can be a binding contract.
What to look out for
Himmel advised to be mindful of the general clauses in a contract as well as an interpretation clause that defines how specific terms are to be interpreted.
Depending on the purpose of the contract, Himmel recommended paying attention to amounts and timelines stipulated in a contract as well as cancellation clauses, which will outline the rights of each party to cancel the agreement.
It is also important to be aware of the particulars of a breach clause or default clause, which will outline potential aftermath of breaching the agreement.
When a contract is breached
If either party breaches a binding contract, the penalty clause in the contract will be abided by, if there is one.
“Penalty clauses are merely inserted by agreement between parties in order make sure parties fulfil their obligation under any contract,” Himmel said.
An offended party may also sue the offending party for damages. “You must be able to prove that you’ve suffered a loss to claim damages,” he added.
Even if a contract entails a penalty clause, an offended party can sue for damages, but the penalty clause will be taken into consideration.
“The court must determine if your damages are valid.”