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UNIT 6 - FORMALITIES Cheat Sheet (DRAFT) by

Another requirement for entering into a valid contract according to South African contract law.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

GENERAL RULE

There are no prescribed formal­ities for the formation of a valid contract.
A contract can take any form - verbal, in writing or even tacit (e.g buying a newspaper)
Formal­ities are catego­rised as:
- self-i­mposed formal­ities
- statutory formal­ities

FORMAL­ITIES PRESCRIBED BY STATUTES

Prescribed Formal­ities required for Validity:
The Alienation of Land Act 68 of 1981 provides that a contract for the sale, exchange or donation of land should be in writing (S2)
General Law Amendment Act 50 of 1956 - contracts of suretyship must be in writing and signed by or on behalf of the surety in order to be binding on the surety. (S6)
& an executory contract of donation must be in writing and signed by or on behalf of the donor. If someone signs on behalf of the donor, he must have written authority granted in the presence of two witnesses. (S5)
Conseq­uences of Non-co­mpl­iance with the ALIENATION OF LAND ACT
in terms of s28:
- non-co­mpl­iance with the formal­ities renders the contract null and void
- if only one party has performed in terms of a contract that does not comply with the formal­ities, that perfor­mance can be recovered.
- the buyer may recover interest on payments made as well as compen­sation for necessary expend­iture and useful improv­ements.
- the seller may claim compen­sation for the occupa­tion, use or enjoyment of the land by the purchaser. She may also claim compen­sation for any intent­ional or negligent damage to the land of the purchaser or any person in respect of whom she is respon­sible.
Prescribed Formal­ities required for Enforc­ement against 3rd Parties:
(1) Deeds Registries Act 47 of 1937- antenu­ptial contracts must be notarially executed before the marriage and registered within 3 months from its execution to be binding against 3rd parties. [s87(1)]
(2) Leases of Land Act 18 of 1969- a long-term lease must be registered against the title deed of the land to be enforc­eable against 3rd parties. [s1(2)]
Formal­ities in Electronic Contracts
(1) Electronic Commun­ica­tions and Transa­ctions Act 25 of 2002:
- document is in the form of data message and is accessible (s12)
- in cases where the law requires the contract to be signed, the electronic document must be signed with an 'advanced' electronic signature (s13)
provision does not apply to [s4(4)]:
- alienation of land
- long-term lease of immovable property
Consumer Protection Act 68 of 2008
- The Minister respon­sible for consumer protection issues can prescribe categories of consumer agreem­ents' that must be in writing [s50(1)]
- any consumer agreement that is in writing will apply even if not signed by the consumer [s50(2­)(a)]
- the supplier must make a free copy of the written agreement readily available to the consumer [s50(2­)(a)]
- the written agreement must be in plain and unders­tan­dable language and must clearly set out the consumers' financial obliga­tions under agreement [s50(2­)(b)(i) & (ii)].
National Credit Act 34 of 2005:
- the formal­ities for these agreements aim to prevent the exploi­tation of the consumers by reducing certain inform­ation to writing. (s93)
- conseq­uences of non-co­mpl­iance with formal­ities:
(1) non-co­mpl­iance with the requir­ements stipulated in s93 does not render the contract void.
(2) they are not requir­ements for the validity of such contracts.
(3) instead, criminal penalties (fines­/im­pri­son­ment) may be imposed on the credit provider for non-co­mpl­iance (s161)
Variation and Cancel­lation of a Contract
A contract that is required by law to be in writing may be cancelled verbally (unless the contract contains a 'non-c­anc­ell­ation issue').
However, any variation (ie changes to the agreement between the parties) of such a contract must, as a general rule, also comply with the formal­ities prescribed by law.
Impala Distri­butors v Taunus Chemical Manufa­cturing Co (Pty) Ltd
the court held: "­for­mal­ities prescribed by law generally require that the whole contract must be in writing. If there is a verbal variation of the contract, the whole contract will not be in writing and this would be contrary to the law. A verbal cancel­lation, however, will not be contrary to the law because cancel­lation of a contract does not amount to a variation of the contra­ct."­
 

FORMAL­ITIES PRESCRIBED BY THE PARTIES

Parties are free to agree on whatever formal­ities they wish, but at most, commonly required formal­ities are writing and signature.
It always depends on the intentions of the parties.
3 possible scenarios can be distin­gui­shed:
(1) the parties agree that their agreement will not be binding unless and until it is reduced to writing.
(2) the parties require their contract to be reduced to writing simply to record their agreement.
(3) the parties may have a contract that is partly verbal and partly in-wri­ting.
The Parties can impose Formal­ities for the Following:
- valid formation (concl­usion) of the contract.
- valid variation (change of the terms after conclu­sion) of the contract by a non-va­riation clause.
- valid waiver of rights (the relinq­uishing of rights) by a non-waiver clause.
- valid cancel­lation (agreement termin­ating all obliga­tions) of the contract by a non-ca­nce­llation clause.
Variation of a Contract
Parties can vary a contract inform­ally. Sometimes they prescribe formal­ities for the variation of the contract.
A non-va­riation clause unduly restricts the parties' freedom to change their minds. The parties themselves agreed to the non-va­riation clause and should be bound by it.
The Shifren Principle
Facts: Shifren leased property to SA Sentrale. Clause 11 forbade any cession or sub-le­tting of the premises without the written consent of Shifren.
Legal Issue: was it possible impliedly to change clause 11 in the light of the non-va­riation clause (clause 19?)
Court Held:
- non-va­riation clauses are valid and enforc­eable in our law.
- promotes certainty
- does not limit freedom of contract but gives effect to it because the parties chose to include it in their contract.
- accord­ingly, a failure to enforce the non-va­riation clause would undermine the principle of pacta sunt servanda.
Limiting the Shifren Principle
(a) Informal agreement is not a variation
It may be possible to escape a non-va­riation clause if the informal conduct is not a variation, but some other type of transa­ction. For example - cancel­lation, waiver, pacta de non petendo
(b) Estoppel
Estoppel is a defence which may be used to prevent the other party from relying on the non-va­riation clause.
However, the defence of estoppel will not succeed where parties have varied their contract by oral agreement.
(c) Public Policy
A non-va­riation clause may be unenfo­rceable if it is against public policy.
Fraud exists where a party delibe­rately leads the other party to believe that he will not enforce the written contract.
Cancel­lation of a Contract
Generally, parties can cancel a contract informal.
The parties can, however, prescribe formal­ities for the cancel­lation of the contract, by way of a non-ca­nce­llation clause.
A non-ca­nce­llation clause can be informally varied, unless the contract also contains a non-va­riation clause.
Impala Distri­butors v Taunus Chemical Manufa­cturing Co (Pty) Ltd 1975 (3) SA 273 (T)
court held: if it wasn't for the non-va­riation clause the parties would have been free vary the non-ca­nce­llation clause informally by dropping the requir­ement of writing.
Non-Waiver Clause
A waiver is a deliberate abando­nment, or surrender of an existing legal right by the right holder, acting with full knowledge of that right. Waiver can be express or tacit (by conduct).
If the conduct amounts to a waiver instead of a variation, the non-va­riation clause will not apply to it. It is, however, difficult to distin­guish between these two concepts.
The main difference between a waiver and a variation is that:
- a waiver relates to the rights that have already accrued (ie past obliga­tions), whereas;
- a variation changes the future obliga­tions of the parties.