Download lecture 9 (2003 compatible)

Unit 7
Formalities
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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.
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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.
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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.
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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.
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Advantages of written contract over oral
ones:
1. Preparation gives parties time to consider
their positions before committing themselves
by their signatures.
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2. Burden of proof is simplified.
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3. Scope for disagreement on the terms of
the contract is narrowed.
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4. Litigation is limited.
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5. Legal certainty is created.
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6. Remedies can be included in advance.
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Goldblatt: Formalities can be created orally by
the parties.
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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.
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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.
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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:
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“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.”
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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.
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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?
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See Steyn, JP’s conclusion on p. 64 of the
study guide.
Decision: A written contract cannot be
amended verbally (please rectify study guide).
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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.
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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.
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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.
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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.
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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.”
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Christie
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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 McCusker on p. 67.
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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.
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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.
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The aim of the parol evidence rule is given by
way of decisions. See pp. 68-69 in this
regard.
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Rule comprises two distinct rules:
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Integration rule and interpretation rule.
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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.
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When will the rule be admissible?
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If the parol evidence does not contradict the
terms of the agreement.
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The following are not subject to the rule:
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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.
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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.
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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.
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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.