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Godknows Hofisi-Business & Law
I have received several requests to write on important safeguards that may be included in contracts or agreements. Safeguards or protection are clauses in a contract or agreement, which protect the parties thereto.
I will explain some of them hereunder.
Correct details of the parties
Details of the parties should be correctly recorded including identity particulars such as national identity numbers, and passport details or in the case of organisations or juristic persons such as companies the details should be according to the registration documents such as certificate of incorporation.
It is always advisable to request copies of identity or registration documents.
Preamble to agreements
Some agreements contain preambles in order to give context, perspective or background to the contract or agreement. This is to ensure the parties have the same understanding and there is a meeting of the minds.
Definitions and interpretation
Complex agreements should have definitions and interpretation clauses. This helps ensure parties have the same understanding of key terms used in the agreement or to correctly interpret them.
Confirmation of legal capacity to act
It is common for parties to confirm each other’s capacity to act at law. Where a party to a contract is a juristic person such as a company or trust the representative may be required to confirm his or her capacity to act in that representative capacity through a resolution passed by the directors or trustees, respectively.
It is advisable to view the original resolution.Where one is acting on the basis of a power of attorney, request an original and check if it was done properly.
Where a contract is dependent on certain conditions being met for it to be valid or to take effect then those conditions can be set as conditions precedent. These vary and examples may include the provision of proof of funds, due diligence, regulatory approval, production of original documents, resolution of pending issues, etc.
Currency
Some parties may prefer to specify the currency of the contract. For example in our case currency may be United States dollar cash, United Stated dollar Nostro or RTGS transfer. Such clauses may include what happens in the event of currency changes.
Declarations and warranties
It is standard practice to find several declarations or warranties in agreements. Below I explain some of them.
Internal procedures have been complied with
Parties such as juristic persons may declare that all internal procedures or formalities such as necessary approvals have been complied with and a party may be entitled to assume and rely on the presumption of regularity.
No material disputes or pending issues
Parties may declare and warranty each other that there are no material disputes or pending issues that may frustrate the transaction. For example, there are no disputes or situations that may inhibit the transfer of immovable property from the seller to the purchaser.
No valid prior agreements
It is prudent to require a party to declare and warranty that it does not have a valid agreement with third parties concerning the same transaction. In the case of immovable properties a seller may be tempted by a higher offer that comes after signing an agreement.
Not to encumber assets
It may be required that the seller of assets shall not cause them to be encumbered or pledged as secured after signing of an agreement involving the assets.
Where shares have been sold it may be agreed that the existing shareholders shall not pledge the shares as security or cause disposal of a significant part of the company’s business or assets.
Full disclosure
Parties may be required to declare to each other that they have made full disclosure for example on the condition or title of the assets being sold. A seller may also be required to disclose that he or she has disclosed fully all the liabilities and that prior obligations shall be for the account of the seller.
Defects and voetstoots
Sellers usually protect themselves by recording that the purchaser has satisfied himself or herself as to the condition or tile of the assets and that the asset is being sold voetstoots or “as it stands”. This may cover both latent and patent defects.
Breach
A contract should capture situations which amount to breach and what happens in the event of breach. Some contracts define material breach and what happens in the event of material breach. It will be imprudent not to cover breach.
Termination
Situations which may result in termination of an agreement have to be covered clearly. It should also be stated what happens in the vent of termination, for example where there has been part performance such as partial payments.
Applicable laws
It is always important to state the applicable laws especially in the event of transactions involving more than one jurisdiction.
Conclusion
Safeguards are important in contracts. Parties should ensure their lawyers give them adequate protection.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity./He can be contacted on +263 772 246 900 or [email protected]
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