Chapter 6 Formalities PDF

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Chapter 6: Formalities Introduction    As general rule formalities are required for the formation of a valid contract provided other requirements for validity are met, the parties may thus express their intentions in whatever form they wish. Two exceptions to this general rule: o Certain types of...

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Chapter 6: Formalities Introduction  

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As general rule formalities are required for the formation of a valid contract provided other requirements for validity are met, the parties may thus express their intentions in whatever form they wish. Two exceptions to this general rule: o Certain types of contracts the law may require that the parties express their intention in a prescribed formal way. Such statutory formalities include writing, notarial execution, and registration o The parties themselves may agree that their contract will be binding on them only when certain formalities have been observed usually in the form that the agreement be reduced to writing and signed by the parties. They might also prescribe similar formalities for any variation or consensual cancellation of the contract, or for any waiver of rights arising from the contract. Generally advisable to put important contracts into writing to facilitate proof of the existence and terms

Formalities prescribed by law 

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Various statutes require that certain types of contracts should comply with prescribed formalities. Usually require that the contract be in writing and be signed by one or more of the parties and sometimes that the contract should also be notarially executed and registered if it is to be effective against third parties Certain statutory provisions also apply to formalities in electronic contracts Although the wording of each statutory provision prescribing writing as a formality determines the actual scope of the provision the following general comments can be made:  All the material terms of the contract must be in writing not just the essentialla  Terms implied by law (naturalia)obviously need not to be in writing, tacit terms also do not need to be in writing  Terms do not all need to be in one document  Any variation of the material terms of the contract has to be in writing to be effective where a subsequent agreement does not amount to variation of a contract that agreement may be oral. This is the case where the variation grants an extension of time or parties cancel their contract and where the parties to a cancelled contract of sale of Land revive a cancelled contract  Sometimes a party misleads the other party by agreeing to an oral variation of a contract only later to rely on the formal invalidity of the variation of their contract. May the party use the defence of estoppel? The defence of estoppel will not succeed here because estoppel may

not be used to achieve results that is contrary to law( that is an oral variation that is contrary to a statutory prescription)  If the formalities are not complied with the contract is void. any performance in terms of the void contract may be recovered with one of the enrichment actions recognised by our law- Carlis v McCusker: the court developed a new enrichment action that allowed for the recovery of performance in the case of a formerly defective alienation of land but without any of the technical requirements of the other enrichment actions. The recipient of the performance may defeat action by performing or tendering to perform his or her obligation in terms of the void contract.

Prescribed formalities required for validity 

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The law requires certain types of contracts to be in writing and to be signed by the parties in order for the contract to be valid. Failure to adhere to the prescribed formalities in these cases will render the contract void. Alienation of land Section 2(1) of the alienation of land act provides ‘no alienation of land after the commencement of this section shall... be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto acting in their written authority’ Alienation includes sale, exchange and donation Purpose of legislator is to promote legal certainty regarding the authenticity and content of contracts, thereby limiting litigation, preventing malpractices such as fraud If someone signs on behalf of a party he or she must be authorised in writing by that party to do so. this requirement does not apply where a company signs through one of its organs as organs are not agents of the company Provisions of section 2 do not apply to the sale of Land by auction. However where the purchase price is payable in more than 2 instalments over a period of more than 1 year (instalment sale) the conditions of sale must be read in public immediately before the auction and the seller must provide the purchaser with a copy of the contract of sale immediately after the auction. Suretyship A contract in terms of which the surety undertakes to the creditor of the principal debtor that if the principal debtor fails to perform the principal obligation the surety will perform it or failing that will indemnify the creditor Section 6 of the General Laws Amendment Act provides that no contract of suretyship entered into after 22 June 1956 is valid unless its terms are embodied in a document signed by or on behalf of the surety. The creditor need not sign. The same policy considerations that are relevant with regard to the alienation of the land applicable here Further purpose is to bring the contract to the attention of the surety because of the onerous obligation of the surety should the principal debtor fail to perform Donation

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Section 5 of the General laws Amendment Act provides that no executory contract entered into after 20 June 1956 will be valid unless it's terms are embodied in a written document signed by the donor or by persons acting on the donor's written authority granted in the presence of two witnesses. The deed of donation itself does not have to be witnessed The donee has to accept the offer but need not sign the contract Executory donation is one that has not yet been carried out ,that is, it has not been completed by delivery of the promised benefit Purpose of this provision is apparently to make sure that the donor has a serious intention to conclude a contract An oral donation completed by delivery of the benefit is a binding contract

Prescribed formalities required for enforcement against third parties  

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A party will not be able to rely on the contract or be able to enforce it as against third parties unless certain formalities have been observed such formalities are aimed at bringing the contract in question to the notice of third parties Ante nuptial contracts An oral ante nuptial contract is valid between the parties but it has to be notarially executed and registered within 3 months to have effect against third parties Notarial execution entails the conclusion of the contract and writing in the presence of a notary. The notary then signs the document seals it and places a copy of it in his or her protocol Long leases of land Section 1 of the Formalities in respect of leases of land Act provides that an oral lease of land is valid,but that a long term lease of land only has effect against the creditor or successor under serious title of the lessor for a period of longer than 10 years after having been entered into, if it has been registered against the title deed of the leased land. third parties will also be bound if they knew of the long lease because of the operation of the doctrine of notice Formalities in electronic contracts Document considered to be in writing if electronic (section 12 of lectronic Communications and Transactions Act) Does not apply to alienation of land agreement for the long term lease of immovable property in excess of 20 years Applies to suretyship and executory donations of anything but land Section 13(2) electronic signature can now serve as an equivalent to a wet signature

Formalities stipulated by the parties 

Parties themselves may prescribe formalities for the creation, variation or cancellation of their contract. Neither party may depart unilaterally from these formalities

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Creation of the contract Parties to an oral agreement will often agree that the agreement should be reduced to writing and perhaps signed. They may have either of two very different purposes in their mind o Merely to facilitate proof of its terms. If so that comment is binding even if it is not reduced to writing o May intend that their oral agreement will not be binding upon them until it is reduced to writing and signed by them. The prior oral agreement lacks contractual force and will become a contract only if or when there is compliance with the stipulated formalities. Neither party can compel the other to sign the agreement The purpose is a matter of fact. In the absence of contrary evidence, the law presumes that their intention was merely to facilitate proof of the terms of the agreement. The party who alleges otherwise bears the onus of proving such an intention Goldblatt v Fremantle F undertook (orally) to supply G with Lucerne at intervals. The parties agreed that F would reduce their oral agreement to writing and that G would confirm it in writing. F set up the terms of the agreement in a letter and asked G to confirm the terms in writing. G failed to do so, so F stopped supplying G with Lucerne. G claimed contractual damages from F. The Appellate Division held that no contract exists because the parties intended the agreement to be concluded in writing which also involves signing by both parties. De Bruin v Brink Court held that such intention could not arise from an agreement to merely embody terms which had previously been verbally agreed upon in a written document. such an undertaking would be quite consistent with an intention to be Bound by the verbal agreement In the absence of evidence about their intention, the conclusion of an electronic contract that complies with the requirement of section 12 of the Electronic Communications and Transactions Act is deemed to be written IS THE INTENTION OF THE PARTIES CLEAR? YES Intention that writing is a formal agreement Contract only binding if written

NO Intention only to facilitate proof

Contract always binding

Variation of the : non-variation clauses and the Shifren principle  Parties to a contract may also prescribe certain formalities for any variation of their contract  It is becoming extremely common practice to insert a non-variation clause. And the standard wording being more less as follows ' No variation of this agreement shall be of any force or effect unless reduced to writing and signed by the parties to this agreement'

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SA Sentrale Ko-operatiewe Graanmatdkappy Bpk v Shifren Non variation clause was not against public policy and that a non- variation of the contract was effective if the clause entrenched both itself and all the other terms of a contract against oral variation In practice however the application of the Shifren principle can produce results that appear to be unjust For example a landlord can orally agree with the tenant that the tenant can pay the rent late, but later cancel the contract on this ground relying on the non-variation clause. This has led many courts over the years to attempt to soften or even circumvent the Shifren principle by invoking doctrines relating to waiver, estoppel, pactum de non patendo and good faith More recently the principle was recently challenged partly on constitutional grounds in what is now the leading case in the subjectBrisley v Drotsky However Supreme Court of Appeal unanimously reaffirmed its earlier decision in Shifren A non-variation clause operates for the benefit of both parties and does not detract from constitutional considerations for equality Cancellation of the contract: Non cancellation clause The general rule is that the parties a fee to cancel their contract at any time by mere agreement. However since parties can effectively prescribe formalities for the creation and variation of their contract, it seems logical that they should also be permitted to do so for the cancellation of contract and this proposition was indeed accepted as correct in the leading case of Impala Distributors vs Taunus Chemical manufacturing Co (Pty) Ltd as with non-variation clauses it has become standard practice to insert in a written contract a non-cancellation clause, prescribing certain formalities, usually written and signature ,for the cancellation of a contract Such a clause is restrictively interpreted and applies only to consensual cancellation that is to situations where the contract is terminated by mutual consent, it will not prevent a party from cancelling the contract unilaterally on the ground of breach of contract by the other party Impala case- the addition of the non-variation clause had the effect of entrenching both itself and non-cancellation clause. The non-cancellation clause must be coupled with a non variation clause The standard wording is no variation or consensual cancellation of this contract shall be of any force or effect unless reduced to writing and signed by the parties Limiting the shifren principle Sometimes have consequences that are unsatisfactory The application of the shifren principle in various ways restrictive interpretation Restrictive interpretation Interpreted because it curtails the parties freedom of contract A non variation clause prescribed formalities only for the variation of the contract. a variation is a bilateral consensual at by which the parties change the terms of a contract. any legal acts that does not amount of variation is

unaffected by non variation clause On this basis it has been argued that an informal cancellation of contract is valid despite the presence of a non variation clause because cancellation extinguishers rather than varies the contract Certain forms of waiver also do amount to variations snd hence fall outside the scope of the shifren principle a waiver is Abandonment of legal right by the right holder with the full knowledge of the existence of the right Such abandonment can take various forms some consensual others unilateral On the other hand for following forms of waiver have been hailed not to constitute variations and therefore do not fall foul of a non variation clause Waiver of an accrued right arising from breach of contract (e.g. Of the right to cancel contract or to claim damages) The discharge of an accrued obligation to make certain performance under a contract by the creditors acceptance of a substituted performance (datio in solutum), aura by his or her releasing the debtor from the obligation An agreement not to enforce a right accruing under a contract at least for a limited period of time (pactumole non patendo) a Promise by a creditor not to cancel the contract if the debtor fails to perform its obligation on time

Where enforcement would be against public policy A non variation clause will not be enforced where enforcement would be contrary to public policy e.g. Where a party fraudulently relies on the clause it seems the clause will not be enforced the fact act in bad faith by attempting to enforce the clause does not in itself mean that such enforcement is against public policy Brisley v Drotsky Cannot refuse to enforce a contract your provision simply on the basis of good faith since good faith is not a free floating principle capable of independent application rather it is an underlying value that informs various rules and principles of the law of contract the rules regarding illegality The fact that enforcement would be an affair in determining whether a non variation clause would be against public policy. Brisley v Drotsky The court assumed without deciding that the Sasfin principle could be extended to the enforcement of terms Where is party is is toppled from enforcing a non variation clause no reported case where it has been successfully raised on the facts. Area of estippel is also uncertain The defence of estoppel would clearly not succeed where the parties have varied their contract by oral agreement

Non Waiver Clause The drafters of contracts were quick to notice that waiver might afford a means of escape from the shifren straitjacket Accordingly it is now standard practice to include in written contracts yet another clause a non waiver clause which is to the effect that no latitude or indulgent Shownn or extension of time granted by the creditor on any particular occasion should be construed as a waiver of his or her right to insist upon strict compliance with the terms of the contract or of his or her remedies in respect of any prior or subsequent breach of the contract Such a non waiver clause is valid and effective but is strictly construed by the courts. Wedding it might also preclude auction of estoppel...