Law of Contract Unit 7 Formalities Learning Outcomes

Law of Contract Unit 7 Formalities

Learning Outcomes: Analyze and discuss the background and current position regarding the compliance with formalities as a requirement for a valid contract. Provide a critical discussion of the legal position regarding formalities imposed by the parties themselves to a contract. Analyze the position regarding non-variation clauses in South African law from the Shifrendecision in 1964 tot the Cecil Nurse-decision in 2008.

Provide a critical discussion of the legal position regarding formalities imposed by law and statute. Explain the position regarding noncompliance with formalities. Analyze and critically evaluate the position and presence of the parol evidence-rule in South African law, with specific reference to case law. Analyze and critically discuss the position regarding rectification in South African law.

Study: Hutchison et al Chapter 6. Goldblatt v Freemantle. SA Sentrale Ko-op Graanmaatskappy v Shifren en Andere. Miller and Another v Damnecker. Cecil Nurse (Pty) Ltd v Nkola. Akasia Road Surfacing (Pty) Ltd en ‘n ander v Shoredits.

Introduction to formalities: SA Law: Follows informal approach to the creation of contracts. Goldblatt v Freemantle. Recognises both express contracts and terms and tacit contracts and terms. Conradie v Rossouw: SA Law accepted Roman -Dutch concept of a contract as a serious and deliberate agreement. Christie: NO SPECIAL FORMALITIES ARE REQUIRED FOR THE MAKING OF AN ENFORCEABLE CONTRACT.

Advantages of written contract over oral ones: 1. Preparation gives parties time to consider their positions before committing themselves by their signatures. 2. Burden of proof is simplified. 3. Scope for disagreement on the terms of the contract is narrowed.

4. Litigation is limited. 5. Legal certainty is created. 6. Remedies can be included in advance. Goldblatt: Formalities can be created orally by the parties.

Formalities decided on by parties: Usually: writing for evidential purposes, rather than for the imposition of formalities. If formalities are imposed by the parties, no legal consequences will ensue if such formalities have not been complied with. Distinguish once again pre-contractual negotiations from formalities. See study guide p. 62.

Non-variation clauses. Effect: No part of the said contract may be varied in any other way than writing. Prevents oral variation of a clause. Protect contractants against disputes and problems of proof regarding variations of their contract. Brisley v Drotsky- see quote by Cameron JA. Agreements entered into freely and willingly must be given legal effect. Strict enforcement of non-variation clauses by courts often causes problems for contractants.

The Shifren-case. Respondents had sought damages in the court a quo against the appellants, because the latter had ceded his rights to another without the permission of the respondents (either written or orally). The contract contained the following clauses:

“The tenant shall not have the right to sub-let the said business premises or any portion thereof, nor shall he have the right to cede this agreement to any person whomsoever without, in either event, the written consent of the owner first being had and obtained. ” “Any variation in terms of this agreement as may be agreed upon between the parties shall be in writing otherwise the same shall be of no force or effect. ”

Appellant admitted to the cession, but pleaded that he had entered into an oral agreement with the respondents in terms of which the latter agreed to the said cession on condition that the appellant took responsibility for the payment of levy by the cessionary. Court a quo: Decided that parties were allowed to orally agree that oral permission for the said cession would be sufficient.

Question before appellate division (Steyn JP): Could the parties conclude a valid oral agreement (despite the 2 clauses mentioned above) whereby the contract would be amended to allow for the fact that oral permission for cession would be permitted?

See Steyn, JP’s conclusion on p. 64 of the study guide. Decision: A written contract cannot be amended verbally (please rectify study guide).

Cecil Nurse (Pty) Ltd v Nkola: Respondent had returned to the appellant a duly executed suretyship document and credit application form. Suretyship provided that alterations to its terms would only be binding if agreed to in writing by the appellant. Appellant instituted action in the magistrates’ court for payment of debt on the basis of suretyship. Respondent contended that suretyship had mistakenly been sent by his assistant in his absence.

Magistrates’ court found in favour of the appellant, but this was set aside by High Court. Appellate division: Once the original suretyship signed by the surety was sent to and received by the creditor, a contract of suretyship had come into being. The onus rested on the surety to prove that the creditor had agreed to the proposed amendments, thus constituting a new contract of suretyship.

Current legal position: A written contract cannot be varied by a subsequent oral one. See Neels’s argument against a rigid application of the “Shifren staight-jacket”, and Van der Merwe et al’s submission on p. 162.

Formalities imposed by law. Examples: Alienation of Land Act. General Law Amendment Act: Contracts of suretyship must be in writing and signed by or on behalf of the surety. National Credit Act: Credit agreements are required to be in documentary form.

Purpose of formalities imposed by statute: “To ensure reliable evidence of the terms of the contract and so cut out wasteful litigation caused by faulty memory or attempts to maintain fraudulent claims or defences. ” Christie

Non-compliance with formalities results in nullity of the contract. Performance rendered in terms of a formally defective agreement is regarded as having been made without legal ground. See rule of Carlis v Mc. Cusker on p. 67.

The parol evidence-rule.

Purpose: Ensuring that where the parties have decided that a contract should be recorded in writing, their decision should be respected, and the resulting document will be accepted as the sole evidence of the terms of the contract. Any parol evidence regarding the negotiations and contents of the agreement will be misleading.

When a dispute arises about an agreement reduced to writing, a party will often experience the need to bring extrinsic evidence to prove his version of the content and meaning of the contract. The rule restricts the nature and extent of the evidence that may be brought.

The aim of the parol evidence rule is given by way of decisions. See pp. 68 -69 in this regard. Rule comprises two distinct rules: Integration rule and interpretation rule.

Integration rule: Determines the extent to which extrinsic evidence is admissible to prove the terms/content of a contract. Interpretation rule: Determines when and to what extent extrinsic evidence may be brought to interpret the words used in a document intended as a final reflection of the transaction.

When will the rule be admissible? If the parol evidence does not contradict the terms of the agreement. The following are not subject to the rule: Parol evidence to counter admissions of fact in a document. Evidence to prove the nullity/voidability of the contract. Extrinsic evidence not inconsistent with the document.

Rectification: Risk of written contract: Document might not give accurate expression to their common intention. Parties cannot be held bound to a document which does not reflect their true agreement. “Rectification”: Correction of a contractual document by judicial decree. Contract itself as juristic act is not rectified. Only the document is rectified to extend what the contractants intended to be the content of their juristic act.

When may rectification be claimed? Rectification does not amount to variation of the contract. Proof of prior agreement is sufficient basis for rectification. Rectification may also be granted where there was no prior common intention, for instance where a fraudulent contractant drafts the document so as to prevent its reflecting that common intention.

Akasia Road Surfacing -Case: Rectification of a contract has as its purpose the bringing of the written document into harmony with the true intention of the contracting parties, which intention they failed, by reason of a common mistake, to put into writing.