Lec 11-Formalities in Contract PDF

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Summary

Formalities in Contract:Introduction: Any form: writing, tacit, verbal – still binding on the parties.  General rule: No formalities are required for the formation of a valid contract.A valid contract entails: Consensus Capacity Formalities Legality Possibility Certainty General Rule: The general...

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Formalities in Contract: Introduction: Any form: writing, tacit, verbal – still binding on the parties. General rule: No formalities are required for the formation of a valid contract.

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A valid contract entails: 1. 2. 3. 4. 5. 6.

Consensus Capacity Formalities Legality Possibility Certainty

General Rule: 

The general rule is this: No formalities are required for the formation of a contract. This rule is however, subject to the following qualifier: “Provided that all other requirements for a valid contract are met.

Formalities – Exceptions: 1. The general rule that formalities are not required is discounted if the law requires that the parties express their intention in a prescribed form: Examples of form that may be prescribed: i. ii. iii.

Writing Notarial execution Registration

2. If the parties themselves stipulate that certain things will constitute a binding obligation on them if certain formalities have been observed (self-imposed). 3. Unstated third exception: “Credit agreements”.   

Contracts for the Alienation of Land (Alienation of Land Act 68 of 1981 Alienation includes: Sale, Gift and Exchange. Prescribed by statute.

Examples of Formalities: 

Agreement must be: o Writing and signed

o Notarially executed o Registered o Self imposed formalities – variation must be in writing, consensual cancellation. Statutory Formalities:    

Prescribed by statute Reason: Policy Reasons Parties are obliged to determine the relevant statute which applies to their contract. The agreement will be subject to the statutory formalities if there are any.

Writing an Agreement: 

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Two reasons: o To prove the existence and terms of the contract. o Formality for the creation of a valid contract. Presumption: Doubt about the reason why the agreement is in writing – presumption is that it is merely for the purpose of proof. The contract remains valid even if it is not in writng.

Writing as a formality:    

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All the material terms of the contract must be written down. Terms implied by law need not e in writing. Tacit terms? Parties cannot sign an incomplete document. The aim of formalities is for policy considerations: o Promote legal certainty – the authenticity and contents of contract o And to reduce disputes between parties. o Prevent malpractice such as fraud. o Notice to third parties. Non-compliance renders the contract void.

Contracts subject to Statutory Formalities:      

Alienation of Land Act 68/1981. Alienation includes “sale exchange or donation of land” (S1(1)). A deed of alienation must be in writing and signed by the parties/agents with written authority (S2(1)). Does not apply to sale of land by auction – two installments payments – conditions must be read in public before the auction – copy must be provided afterwards. General law Amendment Act 50/1956. Suretyship agreement – between the creditor and the 3rd party in terms of the parties undertaking to settle the debt if the principal debtor defaults.

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Formalities are aimed at protecting the surety. Contracts must be in writing and signed by the surety or on his behalf – s6 Aims of formalities: Bring in terms – the contract – to the attention of the surety. S5 of the General Amendment Act 50/1956. Donation Requires executor contract of donation (hasn’t been carried out) to be in writing and signed by the donor or person acting on his behalf – should have the written authority granted in the presence of two Prescribed formalities required for the enforcement against 3rd parties. Antenuptial contracts – should be notarially executed and prescribed within 3 months to have effect against 3rd party What does notarial execution entail?

Notarial Execution:  Formalities in Electronic Contracts:    

EC&T Act 25/2002 S12 – writing requirement is met if the document is in the form of a data message and is accessible. Where the contract has to be signed – the electronic contract S13 of ECA provides that an electronic signature can now serve as the functional equivalent

Formalities stipulated by the parties in the creation of the contract:   

Are imposed by the parties ie parties are free to agree on whatever formalities they wish to adhere to. An agreement to reduce an agreement into writing Why the parties might stipulate formalities in their contract? o As a wish to have a written record o Or the parties may intend that their oral agreement will not be binding to them until reduced in writing and signed by them. (if this is the case, then any prior oral agreement will lack contractual binding force and will become contract only if or when there is compliance

Formalities stipulated by the parties: Non-variation clauses and the Shifren Rule: Enforceability of a non-variation clause. A non-variation clause can be a formality that the parties can agree on. “No variation of the contract will be of any force or effect unless it is reduced to writing and signed by the parties”.  Such a clause is valid and enforceable. 1. Non-Variation Clauses (Shifren Rule)  SA Sentrale Ko-operatiewe Grabnmaatskappy Bpk v Shifren (1964) 4 SA 760 (A)  What is the rule stated in this case?  A non-variation clause is not against public policy and that no oral variation of the contract is effective if the clause entrenches both itself and all the other terms of the contract against oral variation.

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Some academic criticisms of the Shifren Rule: A non-variation clause restricts the parties freedom to change their minds and alter their contract by subsequent oral agreement – parties should be able to change their contract by mutual consent, despite a non-variation clause.  Parties agreed to the non-variation clause and should thus be bound by it. Not giving effect to the non-variation clause would limit the parties freedom to the use of the nonvariation clause – parties cannot thus orally vary the contract where there is a nonvariation clause.  “the principle in Shifren’s case has consistently been applied, albeit with a rider (qualification) in a recent case that non-variation clauses are to be restrictively interpreted since they curtail freedom of contract. It is therefore still good law, despite the facts that the courts have frequently felt uncomfortable about applying the principle 

Formalities stipulated by the parties: Non-Cancellation clauses and the Impala Rule: 

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Formalities stipulated by the parties: Non-waiver clauses: 1) Non-waiver  What is waiver? Waiver is a voluntary and intentional relinquishment/surrender or abandonment of a known right, advantage, benefit, claim or privilege, which, except...