Legal Tips

Contract

Document Date: 15-Feb-2011

Here are some Frequently Asked Questions on the topic "Contract":

1. What is a contract?
2. What are the main requirements of a contract?
3. What constitutes an offer in a life insurance contract?
4. When does an agreement come about?
5. When is the life insurance contract concluded?
6. What is consideration?
7. What is meant by capacity to contract?
8. When does a person have capacity to contract?

1. What is a contract?

   A contract is a legally binding agreement between two or more persons.

2. What are the main requirements of a contract?

   The main requirements are:
   
   1. intention to create a legal relationship
   2. offer and acceptance
   3. consideration
   4. capacity to contract

3. What constitutes an offer in a life insurance contract?

   The proposal form submitted by the proposer is the offer.

4. When does an agreement come about?

   An agreement comes about if one person makes an offer and another accepts it. The acceptance must be unconditional or it will be construed as a counter offer in which case there is no acceptance.

5. When is the life insurance contract concluded?

   Generally, when the insurer issues the letter of acceptance and asks the proposer to pay the first premium, it constitutes a counter offer. When the proposer pays the first premium he is said to have accepted the counter offer and the life insurance contract is concluded.

6. What is consideration?

   Under a contract , one party promises to do a certain thing for something in return. What he gets in return is the consideration. In a life insurance contract, the premium is the consideration for the promise contained in the insurance policy.

7. What is meant by capacity to contract?

   All persons entering into a contract must have the legal capacity to do so failing which the contract will not be binding.

8. When does a person have capacity to contract?
   
   

   1. A minor who has attained the age of 18 years can enter into ordinary contracts in his own name (pursuant to S. 35 of the Civil Law Act) apart from the following:
      
      
      1. any contract for the sale, purchase, mortgage, assignment or settlement of any land, other than a contract for a lease of land not exceeding 3 years;
         
         
      2. any contract for a lease of land for more than 3 years;
         
         
      3. any contract whereby the minor’s beneficial interest under a trust is sold or otherwise transferred to another person, or pledged as a collateral for any purpose; and
         
         
      4. any contract for the settlement of —
         
         
         1. any legal proceedings or action in respect of which the minor is, pursuant to any written law, considered to be a person under disability on account of his age; or
            
            
         2. any claim from which any such legal proceedings or action may arise..
            
            
      For the contracts set out above, a person must have attained the age of 21 years to have the capacity to enter those contracts.
      
      
   2. Under the Insurance Act, a person who has attained 16 years of age can enter into an insurance contract. A person who has attained 10 years but is under 16 years can enter into an insurance contract with the consent of his parent or guardian.