Valid Contract Requirements

What is a contract?

• A contract is an agreement between two or more people
• The agreement should have serious intention of creating legally enforceable obligations
• A contract must have a legal obligation
• An obligation is a legal relationship that exists between parties which entitles them to either performance and/or oblige them to perform in terms of the agreement
• A valid contract establishes personal rights.
• A contract is a special type of agreement
• Not all agreements are contracts
• Not all agreements create obligations like social agreements

Requirements for a valid contract

• Consensus, or "Meeting Of the Minds," occurs when parties agree on the contract's objectives
• There should be a serious intention to be legally bound by rights and duties of the contract
• Contractual Capacity is the legal capability to perform a particular act
• It must be legally possible and lawful, and rights and duties must be permitted by law and the contract itself
• It must be physically possible and there should be objective certainty to receive rights and perform duties
• Performance must be certain or ascertainable
• There are no required formalities unless prescribed by law or the parties involved
• A valid contract arises only if all these requirements have been satisfied

Freedom to contract

• "Pacta sunt servanda" means agreements must be kept
• People are generally free to choose on what grounds and with whom enter into a contract
• There are limitations in certain circumstances like a person may not conclude contracts which are unlawful or illegal
• The Constitution has an effect on a contract
• The Bill of Rights contains several fundamental rights to protect individual freedom and equality
• Constitutional values and principles form part of the law of contract, such as freedom to contract, public policy, reasonableness, and equality
• The Promotion of Equality and Prevention of Unfair Discrimination Act (PEPUDA) promotes constitutional values by prohibiting unfair discrimination on several grounds

Contracting Electronically

• E-commerce is trade conducted by using electronic means, such as the internet, email, or electronic commerce transactions
• The internet enables communication and connections
• Simple retail purchases are the most common form of trading over the internet, while online banking and insurance are also emerging
• E-commerce is paperless, faceless, and often quicker than traditional contracts
• The Electronic Communications & Transactions Act (ECTA) 25 of 2002 aims to facilitate electronic transactions and promote legal certainty for these transactions

Smart (Self-Executing) Contracts

• Smart contracts are computer protocols aiming to digitally facilitate, verify, or enforce negotiations or performance of obligations under a contract
• Smart contracts allow for the creation of trustworthy digital contracts without the intervention of lawyers or intermediaries
• Smart contracts operate without traditional legal processes
• Blockchain technology (digital database with decentralized ledger or record-keeping) facilitates the conclusion and performance of transactions
• Blockchain stores information in blocks via dates, and each completed block moves to the next, making contracts traceable and irreversible
• Blockchain was originally used to support cryptocurrency
• Payments for smart contracts can be done via cryptocurrency
• Cryptocurrency is a digital asset designed to work as a medium of exchange by employing strong cryptography for secure financial transactions and verification of asset transfers
• Common law and statutory law requirements for valid contract conclusion still apply to smart contracts
• Smart contracts are designed for parties who do not anticipate disputes

Constitutionality of smart contracts

• Smart contracts enable credible transactions without third parties like lawyers
• Smart contracts may provide for remedies, including damages, in case of breach of contract
• This poses the potential to usurp the jurisdiction of courts
• Section 34 of the constitution dictates that everyone have the right to have any dispute resolved by the application of law decided in a fair public hearing before a court or another independent and impartial tribunal or forum
• It remains to be decided whether there is conflict between smart contracts and S34
• There is not universally accepted definition of smart contracts
• The legal consequences of smart contracts are still under development
• South African and foreign legal systems have yet to assimilate the legal nature and consequences of technologies related to smart contracts

Artificial Intelligence and Contracts

• AI can help lawyers and paralegals analyze large volumes of documents such as contracts, leases, agreements, policies, and court judgments
• AI extracts relevant information, identifies clauses, compares terms, and flags anomalies
• Some online platforms use AI to create customized legal documents like wills and contracts
• AI systems swiftly analyze large volumes of text to draft standard contracts and suggest specific clauses
• AI can automate the creation of standardized contracts
• AI can help clients with basic and personalized legal advice and guidance by answering common legal questions
• AI can be used in dispute resolution